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Prohibited Transaction in Funded Welfare Fund

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For obscure reasons, an employer provides health insurance through a funded welfare plan arrangement (i.e., through an ERISA trust).

The employer inadvertently used plan assets to pay non-health plan expenses and therefore engaged in a prohibited transaction.  The employer repaid the amounts to the plan plus appropriate interest within the same plan year as the prohibited transaction.

The employer disclosed the prohibited transaction on Schedule G to Form 5500. 

In addition to repaying the amounts, does the employer also owe an excise tax to the IRS for the prohibited transaction?  If so, is the mechanism for paying the excise tax through Form 5330?  Even if there is no excise tax to pay, should the employer file a Form 5330?

The instructions to Form 5330 seem to indicate that the Form is inapplicable to this situation and Schedule G's instructions provide that Form 5330 should be completed if the filer is a pension plan. 

I do not have any experience and wonder if anyone else has come across this. 


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Take a look at 4975(e)(1), which defines "plan" for the purposes of the prohibited transaction excise tax. Welfare plan trusts (VEBAs and anything else) are not defined as PTs.

However, depending on the nature of your trust and the expenses paid, you may have other issues that may endanger the tax qualification of your trust.

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