Distribution in error - refund of FIT withheld?

Plan custodian distributed participant's account upon his termination of employment and withheld required FIT, issued him a 1099.  Participant was a union employee and filed grievance to be re-hired, which he won.  Now he has been rehired and wants to put his money back in the plan, including the FIT withheld.  The only guidance I can find says that the employer has to "repay" the FIT withheld into the participant's account and then apply for a refund from the IRS.  Thoughts?

The distribution was paid to the participant and was presumably taxable. Why would the IRS refund the tax withholding?

So, are you saying that it is the participant's responsibility to adjust their personal tax return to show that they put their distribution back into the plan?  Is there any responsibility on the employer to deposit money in the participant's account to make up for the tax withheld?

Sounds like he received a distribution while he was a terminated employee, do I understand that correct? Was this a cash out? Did he make an election?

Now he wants to roll the money back into the Plan (presumably he's in the 60 day rollover window), he can do so but he needs to come up with the withholding if he wants to roll back the full amount and will presumably get a refund when he files his taxes.

Or am I confused on the facts?

I'd want to know - did this occur in two different plan years?  If so, then the participant got credit for the taxes that were paid in to the IRS on his behalf.  That amount (which would have been reflected on the 1099-R form) went toward his overall total tax debt. 

Even if the distribution occurred in the current plan year, the participant would still receive credit for those taxes paid into the IRS on his behalf  so I would say that the participant would have provide 100% of the distribution amount back to the Plan.

On 3/3/2022 at 2:33 PM, t.haley said:

The only guidance I can find says that the employer has to "repay" the FIT withheld into the participant's account and then apply for a refund from the IRS. 

t.haley, can you provide a cite for this? It actually sounds like that might be the right answer. Yes, he received what appeared to be a taxable distribution when he received it, but because he is reinstated he should be made whole. Of course, unless (a) the employer gets the withholding back from IRS and (b) the employee is not able to claim the withheld amount on his 1040 (which sounds very complex administratively), the employee will be unjustly enriched.