Is there any scenario in which you would need to report the cost basis of a mutual fund when processing a distribution? For example, if the plan allows for distributions in-kind and the participant rolls her balance (in shares) to an IRA. I know you need to keep track of cost basis for employer stock, but I don't think you need to keep cost basis for mutual funds? The issue has come up because our current recordkeeping system (Trustmark) tracks cost and we are switching to another recordkeeping system that does not store this information and we are wondering if we need it?

Part III of the Schedule G (5500) requires the purchase price for nonexempt transactions.

[This message has been edited by Bob Collins (edited 05-15-2000).]

In my opinion, you need not report the cost basis of the mutual fund being distributed "in kind". The value of the fund on the day of distribution becomes the cost basis to the participant.

To be nosy, how often do you distribute mutual fund shares in-kind? I would assume that if this happens, the shares transfer to an IRA, where cost basis is insignificant. If the participant was to take it personally, would you sell of some shares to raise the dollars for the 20% withholding? My experience in the daily valuation field was to sell the shares, distribute it to the participant, and let the participant buy back into the mutual fund, if that was their intention. Of course, I'm sure there could be some exposure due to market fluctuation.