Embezzlement from corporation/plan sponsor by participant; any recourse for the plan sponsor?

[Guest ELS]

I have a client who has a participant who embezzled over $20,000 from the Corporation. The client is not planning to take the participant to court, as the participant is a cousin, and has no resources for a court battle (and no resources to repay the embezzled funds).

The client is stating that the participant has not been terminated by the Corporation, nor has the participant "quit". The participant is still on the Corporation's "payroll", although he does not receive a paycheck and does not provide services to the Corporation. However, the Corporation is still paying for his regular health insurance, and he is not disputing the receipt of this benefit.

Does the client have any recourse against the participant's balance in the Plan, since there will be no court judgement?

Any insight is much appreciated!

[david rigby]

Certainly no direct recourse.

Other prior discussions on this topic may be helpful. Try the Search feature.

You don't identify your relationship other than this is your "client". If you are not the plan's attorney, be careful what advice you give. (OK, even if you are the plan's attorney, be careful.)

[GBurns]

How can anyone be on a payroll who is not rendering service or on an approved leave of absence?

And certainly no direct recourse gainst the Plan.

But, if this is embezzlement, Why would the client need resources to have the alleged embezzler prosecuted or if it is the alleged embezzler who has no resources, Who cares? Prosecution for embezzlement as with all criminal activity is done by the government not the victim (client).

[four01kman]

Isn't embezzlement one of the items covered by the plan's fidelity bond? I would notify the carrier, and go from there.

[Guest jashendo]

The plan's fidelity bond would not cover embezzlement from the corporation -- he didn't embezzle from the plan -- although the corp. may well be covered by some type of bond.

[Belgarath]

As others have already stated here, he cannot recover against the embezzler's plan account balance. This would only be available if the crime were against the PLAN, as authorized by TRA '97, which added IRC 401(a)(13)© and ERISA 206(d)(4).

But I'd sure report it to the police so they could prosecute. Who cares if it's a cousin! The tolerance of some people is truly astonishing.

[mbozek]

While the employer cannot seize the benefits, the participant could voluntarily assign the benefits to the employer after the benefits are payable. Reg. 1.401(a)-13(e).

[Tom Poje]

Belgarath:

You show no understanding for the possible situation.

we had one plan in which one person embezzaled . probably the nicest way of describing the situation was the plan needed an 'infidelity bond' for the owner . There may be other reasons why someone doesn't want to prosecute.

ah, tangled web we weave.....

[Belgarath]

Tom, you're so right! My less than devious mind hadn't thought about the many reasons why prosecution and/or publicity might be undesirable.