Steve <SteveSpamTrap[at]yahoo.com> writes:

- quote -

First -- the "same-desk rule", which is the *law* that prohibited what
you did, was repealed back in 2001.

HOWEVER, that doesn't mean what you did was OK. Prohibitions on what
you did were enshrined in both federal law *and* generally also in the
text of 401(k) plan documents.

When the same-desk rule was repealed in 2001, it only allowed plans to
allow what you did. It didn't require them to allow what you did. If
your old company's plan was never amended to take advantage of the new
flexibility the same-desk rule repeal created, then you still could
not do what you did as it would be in violation of the terms of the
old 401(k).

- quote -

Doesn't matter. If the text of the 401(k) plan said "thou shalt be
prohibited from taking distributions in the event that we're
acquired", then you're not allowed to do what you did. It doesn't
matter where the money went. The problem is that you violated the
terms of the old 401(k) plan when you took the distribution. And I
wouldn't be surprised if violating the terms of the plan triggers all
sorts of IRS issues.


--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

My company was bought out at the beginning of the year, and I was
told that the old 401k was being terminated... that we would have
enroll from scratch in the new company's plan.

In January, I called my old company's CEO (who became an officer in
the new company), and asked if I could simply roll my terminated
401k account into a Rollover IRA for better investment options. He
said that was perfectly fine, he signed the form as trustee, and I
sent it in to the 401k company. They sent the rollover check
directly to the brokerage holding my IRA... the check was made
payable to the brokerage, I never touched the money.

Now, eight months later the H.R. department is telling me that this
was a huge blunder. Since my employment between the two companies
is considered continuous, my rollover was a nonqualified event.
They want me to liquidate my IRA investments (since they've lost
value this year I would have to eat several thousand dollars in
losses to do this), transfer the money back, and perhaps STILL be on
the hook for IRS penalties.

I'm a bit perplexed by this entire situation. Before I START
thinking about the legal issues of who has liability for any damages
here, I'd first like to figure out whether or not this really was a
prohibited transaction in the first place. Was anything done here
that should require me to reverse this transaction, and if so is
*somebody* on the hook for IRS penalties either way? I just don't
see the issue here... if I had taken possession of the money that
would be one thing, but this was a move from one tax-deferred
account to another that couldn't potentially circumvent saving
limits or anything.