What are the penalties if a plan administrator does not withhold the mandatory 20% on an eligible rollover distribution?

At least the amount that the plan administrator failed to withhold…( Final Treas Reg 31.3405©-1)
If the plan administrator reasonably relied on adequate information provided by the Participant, the plan administrator may not be subject to any penalties or taxes

We have a situation wherein a plan administrator did not withhold on a distribution in which he should have withheld (and he knew he should have withheld). So, in this situation, is the PA liable for the withholding, or if the PA issues a proper 1099 showing no withholding and the former employee pays the tax, is that OK or are there penalties associated with this failure? Would this situation be analogous to a failure to withhold income tax and if discovered in the year in which the tax was not withheld is a matter for settlement between the employer and former employee?

We had this situation occur when I was at the bank. As Trustee and Paying Agent, the bank was liable for the withholding. sometimes the penalty was avoided if it could be shown that the participant/recipient paid the required liability.

If the employee pays the tax, the plan administrator is off the hook. However, the plan administrator may still be subject to failure to deposit penalties (which are significantly lower in most cases than being on the hook for the employee's taxes).