Being held responsible for my ex-company's mistake.

[suetonius]

My state: Florida

Hi, I'm not sure where to post this, please let me know if this is the wrong place.

Basically, my ex-employer is threatening to sue me for a mistake that they made.

I worked at Company X (which is in California) until 2004, but still had my pension funds there until 2007 when I decided to roll them over into my Vanguard IRA. This occurred in August 2007.

In April 2008 (3 mos ago), they contacted me saying that they had accidentally transferred an extra $60K into my IRA, and wanted it back, plus the interest that they would have made in their own investments - for a total of $64,000.

Unfortunately, my Vanguard IRA is held in the Vanguard 500 Index mutual fund, and as you know, the stock marked has tanked since August of last year. (Note: once I initiated the rollover request, there was no additional action on my part to invest any of the funds - it was all automatic).

This means that of their original $60K, only about $53K remains.

I feel that I shouldn't have to give them back any more than that ($53K), because if I give them any more back, I will be left with LESS in my account than I'd have if they hadn't made the error in the first place!! These are, after all, the retirement funds I rightfully earned.

I tried explaining this to them, but they are threatening to obtain the enitre $64K through legal means if necessary, and are saying that I will be responsible for their legal fees if they do have to sue me.

Needless to say, this whole situation has caused me a great deal of anger, frustration, and general unpleasantness. A lot of it is just the idea that my own ex-colleauges would have the audacity to do this to me ... but I guess money is money for some people, no matter what the ethics are. I've spent countless hours on the phone with Vanguard, with the IRA, etc ... all of whom are telling me that it doesn't seem right that I should be held responsible for Company X's mistake, but that I should contact a lawyer to be sure.

Well, I really feel hesitant about spending hundreds or thousands of dollars on a lawyer to help me with something which I shouldn't have to be dealing with in the first place, since it was someone else's mistake!

So here I am ... any suggestions would be greatly appreciated. My basic question is: if an entity accidentally transfers money to me into an account that is held in an investment, can I be held responsible for the gains or losses that occur as a result? And, if I am sued, what would my next step be? (I'm a legal system newbie).

Note: I received a written request from them last week for the full $64,000 (with legal "warning"), and have already obtained a check from Vanguard for what remains of the mistake. From Vanguard's end, their standard procedure is to take the excess contribution ($60K) and add gains/losses, and refund that amount. So I have a check for $53K which I'm going to send to Company X, with a letter saying that I can't give them any more than that. (in a tactful manner of course).

Thank you so much in advance!

S

[Alex23]

Is there a statute of limitations for making an error in a transfer like that?

What would you do if you had spent all of the money? Maybe it got attached to alimony or child support?

[tranquility]

You are going to need to get a lawyer. Get one who can review all the facts and research applicable law before you do anything. Odds are you will owe the company for the money. Not the reduced portion and not including interest (at least prior to the demand), but the money you got which was not yours. That does not mean you don't have defenses and I think negotiation is possible.

However, there are tax issues here as well. This was probably a trustee to trustee transfer, making it non-taxable. But, since too much was transferred, you may have an overcontribution in your IRA which requires an excise tax penalty. Also, you will have to deal with the withdrawal from the IRA as income. While I think things could be finessed, I'm not sure the process and would have to do a little research on this myself. They may be liable for some portion of the error. (At least the trustee would be.)

Still, this is a big problem. Settling with the company will not make the problem go away as you also have the government to deal with. Get an attorney. You might get him to sue the trustee for any costs or damages to you for the negligence and/or breach of fiduciary duty in the original error. This would not be a slam dunk as you probably should have recognized you got $60K too much.

[suetonius]

I was afraid someone would say that ... well I suppose this is a common question that's asked on these boards but how would I go about finding a good lawyer? I looked in a directory I have and called some places randomly and was transferred around and left some information at a few, for them to call me back ... no one's called back yet.

Should I expect that I'll be able to obtain a free consultation? Ugh ... just the thought of spending hundreds or thousands of dollars to get out of this mess that I shouldn't even have to deal with is so irritating. So far it's mostly been time and aggravation, but once I have to start paying to solve this ... that will really, really suck.

I did speak to Vanguard about the tax ramifications and they told me that excess contribution refunds are not treated as income, and also that there shouldn't be any tax problems since there were no gains. Still I probably shouldn't trust anyone anymore.

Thanks for your help!!

[Dandy Don]

At this point you do not need a lawyer, except perhaps for consultation on strategy--you do not need an attorney until you get notice from the court that you have been sued.

If I were you I would be consulting a local certified financial planning professional or some other expert on IRA matters to see if they have come across this situation before, and you could also do your own research on GOOGLE using the phrases "IRA overpayment" or whatever else you might think of.

If you get an attorney it should be a business law attorney who is familiar with IRA matters or knows someone who is an expert.

[tranquility]

At this point you do not need a lawyer, except perhaps for consultation on strategy--you do not need an attorney until you get notice from the court that you have been sued.

As I wrote you have two problems. The first is with the company and the second is with the government. With the company, the clock may already be ticking on interest on the money once notification has been made you got too much. With the government, you have penalties, interest and excise tax on the overfunded amount. If you deal with it now you may not have real big problems. If you wait for the government to talk with you, you will have years of costs involved and, depending on how you report the rollover, a tax fraud issue.

Since this may cost you, I recommend an attorney so you can try for compensation from the trustee's error. You may be the one doing the suing, not them. (At least at first.)