Participant changed his mind about rollover

Let's say a participant is terminated earlier in the year. He elects a rollover distribution, but later (after the check is issued), decides to put the funds back in the original 401k account. Is that permitted? I would think that it wouldn't be because he's no longer an employee of the original 401k plan. Would you agree?

Thanks,

Not only no longer an employee but would he even be considered a terminated participant at that point? 

How long has it been? More than 60 days? 

It's been less than 60 days, but that rule wouldn't apply because the participant chose direct rollover (or transfer), so no taxes were withheld on the original distribution. I would think that he's no longer a participant at all and the option to put the funds back into the plan should not be permitted. Would you agree?

I do agree that his account was closed when that check was written and his balance went to $0. And it's even easier the longer that money is out of the account. That's why I was asking about the timing.  You might search on hardship distribution returns. I know there was a conversation lately about that not being allowed once the money went out of the plan.

If the person chose a direct rollover (as indicated above), then the money is out of the plan.  The check was not issued to the participant, it was issued to the receiving plan/IRA.  Woe betide a receiving plan/IRA that delays negotiating the rollover check!

What incentive would the plan have to take him back? 

I would not expect hardship distribution rules to be relevant to this situation.  The person's employment ended and a direct rollover was elected.  Why shouldn't that be the end of the story?

I gotta feeling that the participant checked the IRA fees after requesting the rollover and found them substantially higher than leaving the funds in the plan.  Oh well.  Not the plan's problem.

5 hours ago, My 2 cents said:

I would not expect hardship distribution rules to be relevant to this situation.  The person's employment ended and a direct rollover was elected.  Why shouldn't that be the end of the story?

I don't think this referred to the hardship rules per se.  Rather, there has been some informal guidance (at least I haven't seen actual guidance address it) in Q&As regarding timing issues and hardships.  One such question has been what happens when a hardship is granted based on certain circumstances and those circumstances change.  The classic example is a hardship for the purchase of a home and then the purchase falls through for whatever reason.  Some people questioned whether the change in circumstances requires repayment of the hardship distribution because the hardship no longer exists.  The IRS response has been that the plan could not accept repayment of a hardship even if it wanted to, because the hardship was valid at the time of distribution and there simply are no procedures that would allow the money to return to the plan. 

If we look at the present question using the same logic, what rule or procedure would allow a plan to accept assets from a person who is neither employee nor participant (assuming the distribution was proper when implemented.  

Even if there was an incentive to take the assets back, I don't see how it would be permissible.  Like you said, that should be the end of the story.

But what happens if the recipient of the rollover refuses to accept the assets and the distribution goes "stale"?  Is the participants account restored?  Any RKs want to chime in?

In my non-lawyer opinion, if the check was sent out and not negotiated, the plan need never take the money back.  At most, the stale original check could be stopped and a fresh one issued.  I don't think that any investment earnings need ever be considered since the money was not invested any more by the issuing plan.  Anyway, the rollover check (for that is what it was) ought properly to have been sent to the financial institution for the IRA or the other qualified plan, depending, and they certainly would have been obliged to negotiate the check promptly.

You might want to check the plan document.  Our VS document has a provision that allows rollovers into the plan by "former Employees" unless a box is checked in the adoption agreement.  I can't imagine why anyone would want to allow this, but it is allowed in the document.

28 minutes ago, Kevin C said:

You might want to check the plan document.  Our VS document has a provision that allows rollovers into the plan by "former Employees" unless a box is checked in the adoption agreement.  I can't imagine why anyone would want to allow this, but it is allowed in the document.

I could see where a former employee who is still a participant could be able to roll in, but a former employee who is no longer a participant?  

You could reissue the check to another IRA of his choosing if he cannot put the money back in the plan.  How would you handle the check if it became stale?

Assuming the plan currently contains no provision allowing this rollover (as described by KevinC), the simplest way for the plan to handle this is the response "No".

On ‎12‎/‎1‎/‎2017 at 2:13 PM, RatherBeGolfing said:

I could see where a former employee who is still a participant could be able to roll in, but a former employee who is no longer a participant?  

It simply says a "former employee" may roll in unless the box is checked.  There are no restrictions, not even in the base document.  I was really surprised when I saw it and made sure all our restatements had the box checked.  Yet another reason to "read the fabulous document". You never know what you might find.

If the plan permits it, so be it, but then the participant would have to deal with two transactions (since there is no chance that moving the money back from the IRA to the 401(k) plan would negate the rollover from the 401(k) plan to the IRA): 

1.  Distribution from 401(k) plan (direct rollover to IRA)

2.  Distribution from IRA to 401(k) plan (do IRAs have direct rollovers?)

1 hour ago, Kevin C said:

It simply says a "former employee" may roll in unless the box is checked.  There are no restrictions, not even in the base document.  I was really surprised when I saw it and made sure all our restatements had the box checked.  Yet another reason to "read the fabulous document". You never know what you might find.

Very interesting.  I'm not sure what makes a "former employee" eligible for an employer sponsored plan but obviously it can be done.  I'm assuming it would need to be a balance in excess of the force-out limit or the plan would have to roll it right back out