401k Deposits Not Made and Company Has No Money

[Guest needhelp]

I have an associate that is the managing partner of a partnership. The partnership has fallen on very hard times and has run out of money. There have also been 401k funds that have been withheld from employees pay that have not been deposited. As far as I can tell the partners had the best of intentions to keep the partnership viable but didn't so the money went toward other expenses. I have several questions: 1) What sort of liability do the partners have (i.e., criminal or civil or both); 2) If they can somehow find someone to help bail them out of this situation what is the remedy for untimely deposits; 3) What other issues should be considered?

Thanks

[R. Butler]

The correction is to deposit all deferral monies into the trust, including lost opportunity costs. The partners should contact an ERISA attorney immediately. From the tone of your message is sounds like this not just an inadvertent mistake, but rather a willful failure to make the deposits. There could be both civil and criminal penalties.

[Belgarath]

Have them contact a good ERISA attorney, and have them do it NOW. Depending upon the amounts involved, the amount of time which has passed since the participant elective deferrals should have been submitted, what the employer did with the money in the meantime, etc... - you are looking at possible plan disqualification, certainly prohibited transactions, civil and possibly criminal penalties, etc.

There is a PWBA program called VFC (Voluntary Fiduciary Correction)which was established a little over a year ago. It DOES NOT cover criminal violations, but can be used for "normal" late submission of elective deferrals.

Again, I can't emphasize enough that they need qualified legal counsel immediately. Good luck.