Search the Community

Dangers of individually directed plans with participants being able to select where assets invested: Participant moves money from brokerage to credit union IRA account. (No, she shouldn't have had the power to make the withdrawal or establish a new account without the permission/guidance of the Trustee). Participant starts withdrawing money from the Credit Union Account and essentially empties the account to the tune of $30K. Generally, when this happens, the employer will terminate the employee and the withdrawal would be treated as a distribution. No such luck. The employer does not want to terminate the employee, leaving the conundrum of how to correct the plan. Since the funds were safe-harbor and deferral and the participant was below age 59 1/2, in-service distribution doesn't help. Rev. Proc. 2019-19 6.06 (4)(b) seems to indicate, in this case, that after reasonable attempts to collect are made, there is no requirement for someone to repay the plan if the distribution was made to a participant or beneficiary. Any thoughts on how you would handle? Advice to sponsor?

Payroll employee fraudulently paid herself additional compensation in the form of bonuses, PTO payouts, etc. She was terminated recently for cause, the police were involved and the case is currently in court. This has apparently been going on for 4 years and employee deferrals and employer matching contributions were made to the 401(k) plan on the stolen amounts. I have never run into this. 1) Can the plan sponsor make corrections to recoup the fraudulent contributions? (We know they cannot get repayment of the entire stolen amount from her 401(k), but are asking only with respect to the contributions made in error based on the stolen amounts.) 2) Participant just requested a distribution of her entire 401(k). (Ha!) Can employer delay her distribution until this is straightened out? They are still looking at payroll records, etc to determine the scope of the theft. I believe the prosecutor has asked the judge to freeze her account, but I am not certain if that would be preempted by ERISA? Any thoughts would be appreciated. I have searched the forum for "Embezzle," "Embezzlement," "Theft" etc., but there are no prior discussions on point. :-) Thanks!