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401k overfunded (match) and they want money back
Old 11-26-2012, 11:03 PM   #1
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401k overfunded (match) and they want money back

In early 2011 my company A was sold to company B. As a result, I rolled my 401k to my new company B (2011). My new company laid us off early this year 2012.

A few months ago (2012), I received a call from the trustee for company A. They claim they over-funded my 401k on the company match. They are asking for their money back. They tell me this is done all the time, its very simple. They made no mention of tax liability.

I called the trustee for my current 401k and they tell me I would have to do a withdrawal and pay the 10% penalty and taxes on the money I 'return'. Are they right?

It is a small amount, but if I am liable for taxes and penalty, I would not do this until they guarantee in writing that they would pay any taxes due.

Any insights from professionals? Thanks!
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Old 11-26-2012, 11:53 PM   #2
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I think there are two things you need to do.

1. Go through your 401k transactions for the relevant time period and determine whether or not they are correct that they overpaid the match. But let's say for discussion purposes that they are right.

2. If they are right and you decide to pay them, then you could do so from taxable funds. IOW, if they overfunded by $1000, just write them a check from your checking account.

Personally, I would tell them to pound sand and just write off any amount they overfunded. What recourse would they have? If it is a small amount then I don't see them wanting to spend much time chasing it.
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Old 11-27-2012, 01:16 AM   #3
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If they miscalculated the first time (and really a matching percentage is about the simplest calculation to do) then I would want to re-check anything they say because they could easily be just as wrong now. If they force you to pay any kind of fee or penalty, they should be prepared to make you whole to cover their mistake.
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Old 11-27-2012, 12:17 PM   #4
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I did check the statements and it does seem like they over-funded, but by a slightly larger amount.

The amount they are claiming is $140 and change. It is small, but it seems large enough for them to overnight a demand letter to me. It may be because they over-funded our entire group and since they sold us off, they couldn't just take it back out.

Appreciate the advice so far, anyone with legal knowledge to add to this? Could they issue some type of IRS form (that wold screw up my taxes or 401k)?

It is a small amount and I would want them to pay the taxes if any. But at the same time I don't want to blow them off (if they refuse to pay the taxes) if it is going to mess up my account in the future!

Thanks.



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Originally Posted by pb4uski View Post
I think there are two things you need to do.

1. Go through your 401k transactions for the relevant time period and determine whether or not they are correct that they overpaid the match. But let's say for discussion purposes that they are right.

2. If they are right and you decide to pay them, then you could do so from taxable funds. IOW, if they overfunded by $1000, just write them a check from your checking account.

Personally, I would tell them to pound sand and just write off any amount they overfunded. What recourse would they have? If it is a small amount then I don't see them wanting to spend much time chasing it.
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Old 11-27-2012, 12:40 PM   #5
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I wouldn't pay them a cent until they show you proof that they overfunded. They may decide its not worth the hassle for $140!
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Old 11-27-2012, 12:54 PM   #6
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I prefer a simple life but YMMV.

Since you have confirmed that they have overpaid, and by a little more than they are asking back, I would offer to pay them the $140 as a check direct. This would save all the hassle of 10% penalties and trying to get them to make that right etc.
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Old 11-27-2012, 01:01 PM   #7
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I prefer a simple life but YMMV.

Since you have confirmed that they have overpaid, and by a little more than they are asking back, I would offer to pay them the $140 as a check direct. This would save all the hassle of 10% penalties and trying to get them to make that right etc.
+1

... and then you would be done with it. Sure, you'll owe income taxes when you take the $140 out -- maybe $10? Just write a check.
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Old 11-27-2012, 01:27 PM   #8
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There are two things that I would look at....

First, is your account overfunded for the year Second, is the % they gave over the IRS limit


It was a LONG time ago, but I worked for a company that matched 1/2 of your contribution up to 8% match... so, if you put in 16%, they put in 8%... but at the end of the year they determined that there was too much contributed in the plan... so the PLAN had to distribute the money to us... but the company decided to pay the estimated taxes and penalty for a normal taxpayer... so, I got the money tax free in a way...


Me, I would ignore it as the $$$ amount is just to small and I would not care about them anymore.... if they want to take me to court and if they can win, then they get it back... I mean, you are talking at least 1 1/2 years for them to figure this out....
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Old 11-27-2012, 02:04 PM   #9
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I don't quite understand what "overfunded" means. Did you contribute more than the legal maximize for that year? If so, there are 1099R codes for such corrective distributions.

However, if they paid too much in a match or employer contribution, I would gently tell them this is the cost of doing business, thank you, and that I would be willing to help them sort things out if they paid me $1,000 for my time to do so.
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Old 11-27-2012, 05:03 PM   #10
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Yes the extra amount was from the employer contribution side. I contribute the maximum every year and watch the amounts like a hawk, so it was not over my $16.5k limit.

I would write them a check if that was the end, but last time I spoke with them, they insisted the amount was repaid directly from the 401k plan.

This is the sticking point. The amount is small and I really don't care if I have to pay it back, I just don't want my taxes or my 401k plan messed up in the future. Another issue I have is the contribution was in 2011 and it is now 2012, I believe the IRS limits error correction to a short time-frame. I won't even mix (pre and post tax) contributions just to keep it clean. We all know how the paperwork can be messed up...

Thanks all. I think I am going to tell them to 'pound sand' as someone suggested. If they were cooperative, I would be fine. But when I asked them for an audited statement, they said they didn't have one, I guess it really isn't worth it to them.


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I don't quite understand what "overfunded" means. Did you contribute more than the legal maximize for that year? If so, there are 1099R codes for such corrective distributions.

However, if they paid too much in a match or employer contribution, I would gently tell them this is the cost of doing business, thank you, and that I would be willing to help them sort things out if they paid me $1,000 for my time to do so.
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Old 11-27-2012, 05:09 PM   #11
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Seems like they should take it out the same way it went in. Requiring a check from you after taxes and possible penalties can't be proper.
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Old 11-27-2012, 06:40 PM   #12
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Does your current 401k allow YOU to make withdrawals (vs loans) while you're still an employee? Most don't. How do they expect this to happen?

Are the administrators of company A's 401k talking to the administrators of company B's plan?

Edited to add: Just noticed you're separated from company B. But how would it work if you weren't? Do they want you to do a trustee to trustee rollover/transfer of this small amount?

I'm very confused by the process they want.
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Old 11-27-2012, 08:35 PM   #13
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Yes the extra amount was from the employer contribution side. I contribute the maximum every year and watch the amounts like a hawk, so it was not over my $16.5k limit.

I would write them a check if that was the end, but last time I spoke with them, they insisted the amount was repaid directly from the 401k plan.

This is the sticking point. The amount is small and I really don't care if I have to pay it back, I just don't want my taxes or my 401k plan messed up in the future. Another issue I have is the contribution was in 2011 and it is now 2012, I believe the IRS limits error correction to a short time-frame. I won't even mix (pre and post tax) contributions just to keep it clean. We all know how the paperwork can be messed up...

Thanks all. I think I am going to tell them to 'pound sand' as someone suggested. If they were cooperative, I would be fine. But when I asked them for an audited statement, they said they didn't have one, I guess it really isn't worth it to them.
Since they are being jerks I would ignore them for a while and they may well go away. If they continue to bug you, you could offer to write them a check for the whopping $140 and tell them that if that isn't acceptable to them that they are welcome to take you to court for the $140.

It's amazing to me that they have bothered to chase you to the extent that they have. As long as your total contributions were not excessive for 2011 (which you have verified), I wouldn't think it should be a problem for you. The administrator may be on the hook to the sponsor to reimburse the sponsor for the administrator's error though.

I don't for the life of me understand why they are so insistent that the reimbursement come out of your 401k and that a $140 check from you is insufficient.
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Old 11-27-2012, 11:21 PM   #14
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Since it has been well over a year, I think I am going to just ignore them for now. It doesn't seem to have exceeded any IRS limits (not a 'highly compensated employee'). Let's see what happens.

Regarding your amazement, I think this is one of those cases where the bean counter has tunnel vision and can't see anything else. Rules are rules after all the excess money went into the 401k, and so it must come out of the 401k. God (or whoever it is) forbid I should be the beneficiary of an excess contribution (if pay back out of pocket).



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Originally Posted by pb4uski View Post
Since they are being jerks I would ignore them for a while and they may well go away. If they continue to bug you, you could offer to write them a check for the whopping $140 and tell them that if that isn't acceptable to them that they are welcome to take you to court for the $140.

It's amazing to me that they have bothered to chase you to the extent that they have. As long as your total contributions were not excessive for 2011 (which you have verified), I wouldn't think it should be a problem for you. The administrator may be on the hook to the sponsor to reimburse the sponsor for the administrator's error though.

I don't for the life of me understand why they are so insistent that the reimbursement come out of your 401k and that a $140 check from you is insufficient.
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Old 11-27-2012, 11:49 PM   #15
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I wonder if company B audited company A's books when it took company A over and found 401K over contributions across the board, and for whatever accounting rules, company B has to make a good faith effort to recover them in the same manner they were contributed (i.e., straight into and out of your account) before they can be written off?

I would also sit tight and wait to see what develops, since a simple reimbursement check for the amount won't be accepted. The cost to the company of making further efforts to recover the individual amount is probably more than the amount.
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Old 11-29-2012, 02:37 PM   #16
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BrightScope

I would ask this question on BrightScope.com. Real financial advisors will answer your question - great site.
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Originally Posted by Woz2000 View Post
In early 2011 my company A was sold to company B. As a result, I rolled my 401k to my new company B (2011). My new company laid us off early this year 2012.

A few months ago (2012), I received a call from the trustee for company A. They claim they over-funded my 401k on the company match. They are asking for their money back. They tell me this is done all the time, its very simple. They made no mention of tax liability.

I called the trustee for my current 401k and they tell me I would have to do a withdrawal and pay the 10% penalty and taxes on the money I 'return'. Are they right?

It is a small amount, but if I am liable for taxes and penalty, I would not do this until they guarantee in writing that they would pay any taxes due.

Any insights from professionals? Thanks!
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Old 11-29-2012, 02:51 PM   #17
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Real financial advisors will answer your question -
Instead of the unreal ones answering here...
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exactly
Old 11-29-2012, 02:57 PM   #18
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exactly

precisely you can check their credentials, histories, etc. BrightScope | 401k Plan Ratings, Financial Advisor Pages, Better Data for Financial Decisions
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Instead of the unreal ones answering here...
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Old 12-12-2012, 08:31 AM   #19
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It is very unlikely that a company match put you over the 401k max. Each individual can put up to 17k or 17.5k next year into their 401k. The company match is completely independent of this and the company's limitations on their contributions to your 401k are in the neighborhood of 30-40k. So unless you have a C-level job, this likely isn't an issue.

And if this were me with a company coming after me, I would stop taking their phonecalls and make them sue me. I would not write a check no matter how small.
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Old 12-12-2012, 09:13 AM   #20
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In 2011 my 401(k) changed whereby company match no longer applied towards the individual limit.

I actually went over limit in a previous year because I didn't comprehend that the match was accounted for as "my money".

Just FYI. Not an accountant or financial advisor.
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