Settlement proceeds

[Bird]

A 401(k) plan was with investment company A and switched to B a few years ago. A was involved in late trading and sent a bunch of settlement proceeds checks to the sponsor. The checks have prior trustees names on them, and B won't take third party checks anyway. The "pay to" description on the check is sufficiently mangled/shortened that the plan sponsor could (probably) deposit the checks to its own trust account. (It's a law firm and yes I mean the firm's trust account, not a plan account.)

Question - although it would be a prohibited transaction to deposit the checks to the firm's own account, writing a check or checks back out of the account immediately would correct the transaction, right? Would there be any lingering effects from this PT, other than the need to file a 5330 and pay an excise tax on the use of the money, $1 or whatever?

I'm weighing the hassles of trying to get the checks re-issued versus doing something "wrong" but easy.

thx

[Peter Gulia]

Bird, before you evaluate (or as a part in evaluating) whether the method you describe is not-too-wrong for ERISA purposes, you might ask the law firm (if it is your client) to evaluate whether State law and rules permit the lawyers to use their trust account to receive and pay over an amount that, even if related to a fiduciary relationship, concerns a relationship that does not arise from a lawyer-client relationship. State law might make such a use improper.

But if State law doesn't preclude using the lawyers' trust account, using it might (in some circumstances) be consistent with a plan's fiduciary handling and accounting for the settlement proceeds as belonging to the plan.