We have recently encountered this issue with two separate insurance/annuity providers and are not sure what to do. We are trying to find out if the insurance companies are in fact handling this properly.

Scenario: Employee should have been paid out 80% of account balance in 2000. An error was made and he was only paid 60%. The insurance company will only pay the additional 20% as of the original date of distribution. No allowance to be made for gains and/or losses. In our case, it is the participant's favor because the account balance not paid out in 2000 actually lost money from 2000 to now. Is this correct? What is the reasoning and/or legal basis for not paying gains (if any exist) or not taking into account losses (if any exist) for such a distribution.

Who is responsible for the Error? The plan admin, TPA or the insurance co? you need to review the contract with the party who caused the error to see what is the remediation for the mistake and who is responsible for making the employee whole. I dont see how the ins co can back date a distribution paid this year to 2000 since the employee is a cash basis taxpayer who is taxed in the year the payment is received.