Contributions withdrawn after being deposited?

[Jakyasar]

Here is a new one for me.

Brand new CB plan. It was confirmed that 50k was deposited in March 2021. Prepared all certifications accordingly (not filed the 5500 yet).

I just got a follow up statement showing a withdrawal of 30k in April 2021. Was never discussed with me not disclosed. Does not affect the MRC so it is good on that end. Does not affect 404o so no issue with deductibility.

Anyone had experience like this and what is the correct course of action here? I want to make sure that I go on record with them about the penalties, if any. I also want to let them know, very sternly, that this is not a bank account, once in, stays in.

Already starting on wrong foot, time to fire the client? Already becoming a liability.

Thank you,

[Bill Presson]

Doesn't look great, but might want to get details first. Maybe the financial institution did something wrong and it needed to be corrected?

But agree, they have to understand that there are potential issues here.

[Jakyasar]

Hi Bill

Thank you for your input, yes I am trying to follow with them and see what took place. Of course, they are all hiding from me.

Hope all is well.

[QDROphile]

The inquiry starts with the trustee, I suppose. If the trustee is not an institutional trustee, then the lessons about fiduciary responsibility and liability and formalities may begin here. If the trustee is an institutional trustee, but claims to be a directed trustee, some learning is warranted within the institution.  Institutional directed trustees are usually overstepping officious intermeddlers. That is a different problem.

[Jakyasar]

Not institutional trustee. Good points though.

[Lou S.]

4 hours ago, Jakyasar said:

Of course, they are all hiding from me.

Always a good sign...

[QDROphile]

The person who is the trustee needs the fear of ERISA instilled.  Funny, I mostly spend time trying to counter unwarrented fear of ERISA.

[Jakyasar]

I hear you.

An update on why this happened. Client decided to withdraw 30k because his partner's pay credit went down by 30k (due to cb plan formulation).

I got the census at the beginning of the year and provided the numbers accordingly. 3 moths later, I was told that the partner's salary was 30k less (not getting into details, makes my blood boil). Based on the new census info, I redid the calculations and suggested 57k contribution. However the client, in their infinite wisdom, thought - rather than asking me, since the salary was 30k less, 27k was enough and decided to withdraw the 30k on their own making a perfectly funded plan, underfunded.

What I need to find out is what to do, is there a penalty on this, just cannot seem to find it. I told them that I will not proceed until the penalty issue, if any, is resolved.

Thank you

[C. B. Zeller]

23 minutes ago, Jakyasar said:

What I need to find out is what to do, is there a penalty on this, just cannot seem to find it.

IRC 4975, if it is a prohibited transaction (which it sure sounds like to me).

It also may be a violation of IRC 401(a)(2) which is disqualifying. If the plan is subject to Title I, then it is also likely a violation of ERISA 404(a)(1) and the trustee may be personally liable for a fiduciary breach.

[Jakyasar]

CB, thank you for pointing out.