Plan termination distributions done incorrectly

Here is a new one. I have done many many PBGC terminations but never such a mess and screw up.

PBGC termination with 20 participants. 10 chose rollover into the existing 401k plan and 10 wanted lump sum.

Advisor was provided all necessary information to proceed with the distributions and the deadlines.

Despite my constant reminders and follow ups:

Not only the advisor did not do the distributions timely, the advisor, in order to avoid any 1099 responsibility, sent all the monies to the 401k plan without even discussing with me.

Once the monies were transferred to the 401k plan and allocated to the participants accounts as rollover, in return, they were allowed to withdraw as lump sum from the 401k plan. Some of the participants who elected lump sum, decided to leave the monies in the 401k plan.

How can this be corrected?

Thanks

Hypothetically, since I would never try to advise anyone about a potential legal issue...I think the simple correction is to have the plan ask the 10 participants, who originally wanted a lump sum, to complete new pension election forms showing they elected a rollover to the 401(k). That would make everything match for record-keeping purposes in the event of an audit. 

I do not disagree with you but the issue is the election form would have been completed after all transactions took place. what if the participant refuses to redo? You cannot force them.

May be I am overthinking this but not sure how the PBGC would react upon an audit.

Shocking, SHOCKING than an advisor would do this (sarcasm).

I'd be comfortable asking those who decided to leave it in the 401(k) to sign new forms confirming their change of election. The others, I don't think I would want to cover up for the advisor. Just leave it hanging, have them sign new forms to take the money from the 401(k), and document the whole mess thoroughly. The PBGC would probably be content as long as they eventually got their money as requested.

Otherwise you'd have to get the advisor to ask to get the money back from the 401(k) and reprocess. There would probably have to be some legal action to get that going; I don't know. 

Ultimately the advisor will smirk, say "oh I didn't know" and go on his/her merry way.

Actually the advisor in hot waters with this as I am also alerting his client the plan sponsor how the advisor screwed it up without consulting with me, all because he did not want to deal with 1099s. I am not taking any heat for this as I have providing all timely and in great detail.

I am sure this is shocking to all.

I am also leaning towards having the elections forms redone as long as the client agrees to pay for additional work.

Make sure you have all your documentation.  There WILL be an attorney involved eventually, and you want to make sure you have the evidence, so the legal fees are paid by the "advisor".

Why would an advisor be responsible to 1099s unless they/their firm contracted to provide that service? It is a trustee or PA function.

Regardless, they created an operational defect if not a fiduciary breach. 

CuseFan

They created both as they have transferred the assets without the trustee's knowledge as well as against the election forms signed by the participant.

As for the 1099 issue, I believe there was a contract between the plan sponsor and the advisor, not fully informed but does not excuse what the advisor did, especially not contacting the plan sponsor/trustee and me.

David

Everything will documented with the plan sponsor/trustee.

Thank you all for your input. Never a dull moment.

On 8/14/2024 at 12:59 PM, Jakyasar said:

Actually the advisor in hot waters with this as I am also alerting his client the plan sponsor how the advisor screwed it up without consulting with me, all because he did not want to deal with 1099s. I am not taking any heat for this as I have providing all timely and in great detail.

I am sure this is shocking to all.

I am also leaning towards having the elections forms redone as long as the client agrees to pay for additional work.

I would document the reason for the new election forms and have the client sign off on writing. 
 

If this doesn’t get fixed I would say the 401(k) plan could have a qualification issue if the in-service distributions weren’t allowed by plan terms. 

If that’s right, then that might be the stick to get the employer and adviser onboard and moving.