457(b) correction of "overpayment"

[t.haley]

Participant in a non-governmental 457(b) plan incurred a severance from employment and elected to defer distribution of his account (as allowed under the plan document).  the participant was subsequently rehired a few weeks later and continued his participation in the plan.  When the deferred distribution date arrived (2 years later) the recordkeeper failed to segregate the participant's contributions and distributed his entire account, including deferrals made after he was rehired.  Participant is still employed.  Was the participant entitled to receive the distribution of his account attributable to deferrals in his first period of employment (because he did have a severance from employment and elected a deferred distribution date)?  If so, can we treat the distribution of the deferrals made during his subsequent re-employment an "overpayment" and use the correction method for overpayments in EPCRS to correct (knowing that 457(b) plans are not included in EPCRS)?  Any thoughts?

[Peter Gulia]

A plan a nongovernmental employer or its employee intends as a § 457(b) eligible deferred compensation plan is a contract between the employer and an employee.

If an employee received a payment more than the plan provided, the employer should pursue its legal and equitable rights to get a return of the mistakenly paid amount.

If an employer does not pursue its rights to a return of a mistaken payment, that calls into question whether the parties intend or intended the plan’s provisions to meet § 457(b)(6) and to be an unfunded plan for part 2, 3, and 4 of subtitle B of title I of ERISA.

Whether a payee was entitled to some payment following her severance from employment (if there was one) turns on the plan’s provisions. As BenefitsLink neighbors say, Read The Fabulous Document, to discern the contract rights and obligations, and conditions about them.

Under the facts you describe, it seems unlikely that the plan provided a before-severance payment of deferred compensation attributable to the reemployment (if there was one).

For the amount the payee returns to the employer, the employer should want its lawyer’s advice about its legal and equitable rights to interest or investment gain on the mistakenly paid amount.

This is not advice to anyone.