Problematic rollover

[Guest ndgal]

During 2000 a terminated plan participant in a qualified retirement plan rolled his vested balance into a traditional IRA. Subsequent to this transaction, it was discovered the participant was not fully vested in the employer portion of his account. From the reading I have done, I see that the plan sponser needs to make the plan whole again. To do so, the sponsor will attempt to obtain the non-vested portion from the former participant. It is unlikely the participant will authorize a distribution from the IRA to return the funds. My questions are as follows: (1) The sponsor needs to issue a corrected 2000 1099-R to show the invalid (non-vested) portion of the rollover as taxable and subject to the 10% early withdrawl penalty - correct? I presume this will mean the participant will need to amend his 2000 Form 1040? (2) Is there an excise tax issue (or other penalties) for the sponsor for incorrectly distributing the non-vested dollars?

Any cites would be appreciated.