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Dalai Pookah

If our client steals the plan...

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A client terminates her DB plan (non-PBGC) and proceeds to transfer all of the assets to her IRA.  After informing her that she must return the funds over and above her accrued benefit, she refuses.  Participants have not been paid out and the amount transferred exceeds her §415 limit.

If the situation persists, what are our obligations and duties with respect to the client and how should we proceed.

As I see it, we could

  1. withdraw and not perform further services to the plan.
  2. correctly fill out final Form 5500, knowing it will prompt an audit.
  3. report the failure to the DOL as a criminal fiduciary
  4. 1 and 3.
  5. 2 and 3.

Do professional designations affect the result?  Thoughts?

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It's been quite a while, but I seem to recall a few articles by attorneys in our world who concluded that there is no duty to report for your basic non-fiduciary TPA. 

Re #2 - If the client took all the plan money, what makes you think you'd be paid for any further services? 

I'd definitely resign and not perform any additional services.  I'd probably do a bit more research to locate some of the articles about any duty to report to see what they said and if they applied to this situation.   If I felt a need to report it to DOL I might seek my own legal advice first. 

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I know this doesn't help but....

It has been a while since I heard or seen something this brazen by someone regarding a retirement plan.  

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6 hours ago, Dalai Pookah said:

Do professional designations affect the result? 

If it were me, the Code of Professional Conduct for the actuarial profession would be relevant.  I would make sure I had all the facts and make sure nothing in my service agreement prohibited my "speaking up", and then speak up.  None of us should tolerate theft.

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Dalai Pookah, the description “ERISA Attorney” beneath your screen name suggests you might be a lawyer.  If so, you might consider relevant States’ lawyers’ Rules of Professional Conduct.

 

I say States’, plural, because a few States’ rules might apply.  For example, a State’s law might apply because it is a State that admitted you to law practice, because your conduct occurred in the State, because your conduct affected a person who or that resides in the State, or because your conduct affected property in the State.

 

If you are a lawyer but about the situation you described did no work as a lawyer, you might read each State’s rules carefully to discern which rules (within the State’s set of rules) apply.  Some rules refer to “representing” (including advising) a client.  Other rules lack such a reference and might apply because one is (or was) a lawyer, even if she never represents, advises, or otherwise serves any client as a lawyer. 

 

If your client did not use your services to further your client’s crime or fraud, States’ rules differ about whether one must, may, or must not reveal confidential information, which often includes information you learned through your role, even if the information is not a secret.

 

If a rule applies to your conduct and you’re considering how it applies to the facts of your situation, you would think carefully about which person is (or was) your client.  Is it the pension plan?, the plan’s administrator?, the plan’s sponsor?, the owner of the plan’s sponsor?  Different answers to those who’s-the-client questions can lead to different analyses of the lawyers’ professional-conduct rules.

 

If you follow the American Retirement Association’s Code of Professional Conduct, it allows a member to obey law (including, for example, a licensee’s conduct rules) that applies to the member.

 

Feel free to call me if you’d like more thinking than is appropriate for a public website’s display.

 

--------------------

 

BenefitsLink mavens:  For a university’s LL.M program, I teach a course, Professional Conduct in Tax Practice, for “the three As”—attorneys, accountants, and actuaries.  For ASPPA members, I lead CE/CPE/CLE ethics sessions.  I’d welcome your thoughts to help my teaching.

 

If an ASPPA or ARA member governed only by that Code of Professional Conduct is an owner or employee of a TPA firm, sees facts like those described above, did nothing to facilitate the crime or fraud, and lacks responsibility as a retirement plan’s fiduciary:

 

May the member, without the principal’s permission, reveal the information?

 

Or must the member treat the information as confidential information, and so not reveal it until “required to do so by law”?

 

And for either (or another) answer, why?

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#1 resigning with a letter why is certainly one option.

#2 completing the Form 5500 accurately and to the best of your knowledge would seem to be a requirement, regardless of whether or not you suspect it will trigger an audit, which it likely will. Since I think you would have to report party-in-interest transactions, failure to pay benefits when due, a reversion of assets to the employer, and possibly other transgressions.

#3 I don't know what the legal rules are regarding this, though Peter G seems to have it covered better that I could. Though I don't think there is a prohibition on directing participants to the DOL should they call your office.

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On 10/23/2019 at 3:33 PM, Dalai Pookah said:

A client terminates her DB plan (non-PBGC) and proceeds to transfer all of the assets to her IRA.  After informing her that she must return the funds over and above her accrued benefit, she refuses.  Participants have not been paid out and the amount transferred exceeds her §415 limit.

If the situation persists, what are our obligations and duties with respect to the client and how should we proceed.

As I see it, we could

  1. withdraw and not perform further services to the plan.
  2. correctly fill out final Form 5500, knowing it will prompt an audit.
  3. report the failure to the DOL as a criminal fiduciary
  4. 1 and 3.
  5. 2 and 3.

Do professional designations affect the result?  Thoughts?

This is a typical ethical conundrum.  What to do; what to do? Each of us has to answer to our own ethics and our own guiding rules and hopefully they will not conflict.  What would I do?  Let me think....

1) Resign. Immediately, with a letter and an explanation that I believe they have both disqualified their plan (the 415 issue) which means their rollover IRA is "no good" and subject to the 6% cumulative compounded excise tax which will eventually take 100% of the rollover as an excise tax when the IRS challenges it, and I would also explain that they have actually stolen money from other participants and besides possible criminal penalties, IRS penalties and DOL penalties, their bonding company is also going to go after them since the bonding company will have to make the other participants whole to the extent of the theft.

2) No way we are going to prepare a 5500 at all; see 1 above.  We no longer work for this crook.

3) Now the hard one: what do I do about reporting this to someone?  I'm pretty sure I don't have a legal obligation under the society ethics rules. Now, what about my moral responsibility?  If a participant calls, I'm going to tell them to contact the DOL since I no longer work for the client.  Since I have never actually had to deal with this kind of an issue, I'm not sure what I would do.  My heart tells me that the crook deserves to be taken to task, which would mean the DOL has to be notified.  Is there a John Doe notification to DOL like IRS has John Doe ruling requests?  I'm sure a private phone call to the local DOL office will get action. Would I do that?  Hmmmmmmm.......

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