IRA Error - How to proceed?

[Spud]

I got a letter from Company A's pension administration consultant today. They say that they over-contributed to my IRA back in August 2007 by about $2500. They made this error because they gave me two checks for my rollover amount from Company B from two different sources: the profit-sharing plan gave me $2500, and the 401(k) company gave me another $2500. Because I never really saw this money (it went straight to UBS), and the rollover amount was a fairly small % of the total amount of my account, I didn't notice the error.

They want me to return the $2,500 to the profit sharing company. But I don't think the $2500 is worth now what it was worth back in August, and I don't want to be penalized for withdrawing money from the IRA. I do agree that I should give them something - but what? And from where? I do not want to keep what is not mine, but I also don't want to be punished for their mistake.

Thoughts/advice appreciated.

[sweeps]

I assume you chose the investment(s) that the money was invested in? If so, then it's unfortunately on you to pay back the full $2500. (Similarly if you had turned that $2500 into $3000, you'd rightly get to keep the extra $500 you earned.)

If any fees are incurred to pull the money back out, they should be responsible for that obviously.

[Spud]

I forgot to update this thread.

I wrote the pension people a letter stating that while I did not want to keep any money that was not mine, I had acted in good faith and didn't feel that I should be punished for their mistake. I offered them the proportional amount of their money back, and they took it.

It pays to advocate for yourself!

[creditcardfree]

That was the right thing for the company to do. If you ever find an error, as to investment date, mutual fund companies have to correct the error as though the original transaction did not happen. The mutual fund takes the loss.

Just something to be aware of.

[m3racer]

How is $2500 now not the same as $2500 back in August '07? Please explain.

[Spud]

Stocks had gone down about 10% since August. This is what happened:

They gave me $20,000 in August. Believing all money was mine, I invested them in mutual funds. The following March, the same account was worth $18,000. Then they called me and told me they wanted the whole $2,500 back that they gave me in error. I wrote them a letter that said, "Well, the markets have gone down since you gave me this money. Since this was your screw-up, not mine, I will give you 12.5% of the total value of my account ($2,500/$20,000), which is now $2,250. I think this is fair. I hope you do too."

They agreed to that solution.

[disneysteve]

I'm glad you got it settled, but I'm not clear on what actually occurred. How did they send you $2,500 that didn't belong to you?

[Spud]

About 15 years ago, I worked for a company called Widgets Galore who offered a 401(k). I was about 19-20 when I worked there, so I wasn't able to put a whole lot into the 401(k), but I did what I could.

After I left Widgets Galore, I worked a couple of companies that did not offer retirement plans. After 8 years or so, I got a job at Wickets USA. Wickets USA offered both a 401(k) plan and a profit sharing plan. The 401(k) was held at BigMoneyFirm, and the Profit Sharing Plan was held at FancyPantsFirm. For ease of my own personal accounting, I decided to roll my old Widgets Galore account (worth about $2500) into my new Wickets USA 401(k) account. So, in the Wicket USA 401(k) accounting system, I had 3 lines: Employee Contribution, Employer Contribution, 401(k) rollover.

Three years after that, I decided to leave Wickets USA because I was going to marry the Vice President of Wicket Services Management. A year after that, I decided to roll my 401(k) that now contained my old 401(k) into a Traditional IRA (which is also what I should've done with my 401(k) from Widgets Galore, but hindsight is 20/20).


So the company that Wickets USA hired to do all their benefits stuff told BigMoneyFirm to give me my Employee Contribution, Employer Contribution, and 401(k) rollover. Then they also told FancyPantsFirm to give me my portion of the profit sharing plan, and my 401(k) rollover, which they should not have done. 8 months later, they figured out that they had made a mistake and wanted their money back.

Is this making sense?

[disneysteve]

Then they also told FancyPantsFirm to give me my portion of the profit sharing plan, and my 401(k) rollover, which they should not have done.

So FancyPantsFirm paid out $2,500 more than was actually in the account? Amazing. You've got to wonder how a mistake like that happens.

[Spud]

My guess is that FancyPantsFirm just holds a big pile o' money that they call "Wickets USA Profit Sharing Plan," and that the benefits company holds the spreadsheet that tells how much of the pile belongs to each employee. So when the benefits company told FancyPants to give up $x, they gave up $x as they should've.

I think the mistake was all on the shoulders of the benefits firm.

But yeah, it got sticky once I put the $ in my IRA, and it got even stickier when the stock market took a dive. Anyway - I'm glad it got straightened out.