My wife's employer shut down and permanently closed their business in May 2018...prior to this closure, their 401(k) plan administrator (a 3rd-party company, not the company's "internal" representative) gave each applicable employee a form to complete; this form contained various options for specifying how and where the employee's funds were to be distributed, as well as pertinent personal information (name, address, date of birth, SSN).
My wife completed the form as follows:
- Requested a $5000 distribution payable to her, to cover federal taxes on an existing loan against her 401(k) funds;
- Checkmarked a box, specifying a 3% withholding to be paid to the State of NJ for said loan distribution; and,
- the remaining balance to be transferred to an IRA account, details of which were specified.
The actual disbursement of funds did not take place until late July, for reasons that are not important; however, the administration company (Aspire Financial Services of Tampa, FL) failed to comply with the first 2 items ($5000 distribution and NJ tax payment)-instead, they transferred the entire fund balance to the IRA account, less the remaining loan balance.
In addition, 1 of the 2 1099-Rs that she received had an incorrect distribution code-the loan distribution had a DC of "L1", which means that "no exception applies"; however, due to her age (58-which Aspire knew, due to her DOB supplied on their form) and that said distribution was due to a separation of service, this 1099-R should have a DC of "L2".
Upon contacting Aspire, their representative first admitted the multiple errors, and indicated that they would send the new IRA account holder (Fidelity) a "Letter of Indemnity" to "retrieve" the requested $5000 amount, and reissue my wife a $5000 check and corrected 1099-Rs (THREE of them-one for the revised rollover amount, one for the loan distribution, and another for the $5000 distribution).
Almost 3 weeks have passed, and nothing has been corrected...and we have been stonewalled when communicating with Aspire-whether by phone or email; as of this moment, the balance in her new IRA account has not changed, and we have not received new 1099-Rs.
So, here are my questions:
- Is there a time frame limit for Aspire to get this mess straightened out?
- Does the new IRA account holder (Fidelity) have any legal obligation to comply with Aspire's request?
- If this issue does not get resolved in a reasonable amount of time, can we, or should we, simply tell Aspire to cancel / stop what they're trying to do?
- If Aspire cannot get this done reasonably soon, and we instead take the $5000 from the new IRA account, would Aspire be responsible for the certain 10% tax penalty, since it was their admitted mistake?
- The controller at my employer said that, given the fact that we have kept a paper trail of emails which include Aspire admitting their error, my wife and I could file a paper 1040, include the supporting documentation, and avoid the 10% penalty; is this true?
Any and all suggestions and advice are welcomed and appreciated!