Embezzlement and Minimum Funding

[Guest sdolce]

We have been notified by a client that one of his employees has embezzled $800,000 from his business(not the plan). Collateral damage(lawsuits,legal fees,lost clients) to his business amounts to another $4,000,000.He cannot make his contribution for 12/31/00 by 9/15.It's too late to request a waiver of minimum funding, or is it? This would seem to be an instance where the government should be able to grant some kind of relief.The Secret Service is involved and they're part of the Treasury Department. Does one side of the house help the other?

[RCK]

Since no one else has responded yet, I will take a shot at it.

I think that the client has a funding deficiency, and there is not much you or they can do about that. I think that now you do what you can to keep it from getting worse--freeze acruals, prepare a request for a funding waiver for the current year, etc.

I don't think that the Secret Service is going to go to bat with the IRS on your behalf, but certainly the fact that they are involved shows the validity of your actions.

Good luck.

RCK

[david rigby]

I agree. Waiver of funding must be applied for by 2-1/2 months after plan year end (March 15 for CY plans). No extension possible.

You might get some consideration from the IRS to waive penalties. However, they have previously stated that they do not have authority to waive the 10% excise tax for a funding deficiency. BTW, it is due immediately. See IRS form 5330.

Next problem is the current year. You can freeze the plan now, thus impacting your funding requirement for current PY.

[AndyH]

I agree as well. I was involved in cleaning up a somewhat similar situation a few years ago where there were two 50% owners, and one embezzled a similar amount and never filed any forms for the DB plan.

The IRS assessed only the excise penalties for funding deficiencies. Their position was that this could not be waived. The 5500 IRS penalties were waived. We never heard from the DOL. The PBGC played hardball, despite an attempt by the IRS agent to help with that.