401k vesting error overpayment

[shinequity]

What is the name of your state (only U.S. law)? MD

According to my former employer, when I terminated I received a 401k overpayment ~$9500 due to a vesting error that credited me with more service than I had actually accrued. I believe these were profit sharing contributions. They are requesting repayment plus interest (~$200). I left in April 2007, I was just informed via U.S. Mail on October 31, 2009. I rolled the entire amount into an IRA.

Assuming my former employer is correct that there is an overpayment...
1) What are my legal rights if they are the ones in error? Is there any law that would allow me to keep the funds? What cases would that support either view should I look into?

Tax implications?
2) If I pay it back am I completely absolved of any tax consequences? (I guess I would have to have it come out of the IRA).

3) If I keep the funds, I believe that I will receive either a 1099-R or 1099-Misc and must withdraw the funds from my IRA and pay any taxes.

Looks like in either case i will have to remove the funds from my IRA, it's just a matter of whether I keep the after-tax proceeds or my former employer does.

What could I be missing?

Thanks!What is the name of your state (only U.S. law)?

[ecmst12]

The money is not yours. There is no law anywhere that lets you profit from someone else's mistake.