Expert: Allen - 2/11/2010

Question
QUESTION: I received notice of an early distribution from my 401K without my permission in September of 2009 and then I received a check with the taxes taken out.  I had not given permission to do the distribution.  In fact, over the phone with the account manager, I elected to postpone distribution back in August of 2008 after being laid off.  I was told by the account manager at PenServ Plan Services the distribution was done due to a partial-plan termination by my former employer, however, my former employer told me that my funds should have not been affected by that partial-plan termination.  
I'm trying to just get my money rolled over into a Tradition IRA so under the direction of my financial advisor, we voided and sent the checks back, requesting a check for the full amount included the taxes that were originally removed to be re-distributed and addressed to the financial company that is handling my roll-over.
they can't seem to get the amounts correct.  This is an error on their account, not mine. I did everything I was supposed to do.  This issue how now rolled over into 2010 and I have received a 1099-r for a disbursement of an entirely different amount and that doesn't match any of the checks that they attempted to send me.  I can't get an answer, i can't do my taxes.  This is their error and its costing me money.  What should I do to get the full disbursement with the taxes that were originally removed?  Does the company who did the original disbursement have any responsibilities in this matter?  Can they get the taxes back from the IRS that were reportedly taken out?  I have contact the HR manager at my former employer, I have contact the account manager at PenServ Plan Services and I've contact a person in accounting at PenServ...   

I'm waiting on revised 1099-r's for the disbursement checks that we currently have before I feel comfortable cashing them, but there's still the issue of the taxes that were removed...which isn't fair that I pay taxes on money that I never gave the approval to distribute. This is Pen Servs problem and its turned into my headache.

ANSWER: Sorry to hear about your difficulties.
You should not have received a distribution if you didn't sign distribution forms. I suggest contacting the local office of the U.S. Dept. of Labor - Employee Benefits Security Administration. They should be able to help you.
Also, if you have a friend who is a lawyer, I would ask him/her to write a letter for you. I would hesitate in contacting another lawyer because the fees can be substantial.
The more immediate concern is with the 1099R. If PenServ doesn't issue an amended form, the IRS will come looking for the taxes on the distribution to you. The amount that was withheld will probably not be enough. Therefore, I would attach an explanation when you file your tax return.
Good luck.

---------- FOLLOW-UP ----------

QUESTION: Thank you for you recommendations thus far. I did contact EBSA and they are now looking into the situation.  My next questions is this, if this distribution was done with out my permission, What are my chances in getting back my taxes from the IRS in full??  either by filing my taxes with the appropriate 1099's (which i have not received) or working with the IRS in getting the money refunded? What kind of resposibility does PenServ have in this and do they have the ability to retrieve the taxes or pay me an equivalant sum and then they deal with getting their money back from the IRS?

Answer
A few comments:
1. The Plan Administrator needs to take action to correct for an error in the administration of the plan. If the Plan Administator does not correct, the IRS can impose large penalties. The Plan Administrator is probably your former employer or a committee or officer designated by the employer. It's probably not PenServ. PenServ has probably been retained to assist with the administration. It has legal responsibilities under its agreement with the the Plan Administrator and can be sued for any penalties imposed on the plan for its inappropriate actions.
2. If money was withheld and a revised 1099R is filed showing that you did not receive a distribution but had taxes withheld, I believe you will ultimately receive a refund from the IRS which you should then return to the plan.