Client allowed an ineligible employee to receive a matching contribution. She was not eligible because the plan requires terminees to complete 501 hours of service to be eligible for the match. However, they contribute the match each payroll period (we know that is a problem, we have tried to get them to change). Participant received the match, terminated, took a distribution and received the match distribution. Client tried to retrieve the match from the participant, but participant refused to return.

What is the correction for this? From my reading, it appears that if the mistake had been discovered prior to distribution, the match could have been forfeited and that would have been that. Should the employer contribute the amount in question to the forfeiture account?

Thank you.

That would seem to be the safest approach, a good faith effort to make the plan whole. The make up contribution should also include estimated earnings that would have accumulated since the withdrawal.

In addition, the amount that the former employee received in error is not eligible for rollover. The participant should be contacted and informed of this additional issue.