Excise Tax

[Dougsbpc]

A trustee of a small 401(k) plan with pooled investments moved $100,000 from bank A to bank B. He himself had a personal account at bank B and $100,000 of plan money mistakenly went into his personal account. This was not caught until a year later.

They will transfer the funds back to the plan account with proper interest, file 5330 and pay the excise tax on the prohibited transaction.

Section 4975 indicates that the disqualified person who engaged in the prohibited transaction is responsible for the excise tax. However, the definition of disqualified person could also include the plan sponsor, fiduciary etc.

Should he personally pay the excise tax or should the plan sponsor?

Thanks.

[Belgarath]

After making the unworthy observation that I sure wish I had so much money that I could have $100,000 transferred to my personal account, and not notice that the balance seemed abnormally high for a year...

On a purely gut reaction, I'd say that he should pay it personally, but I've done no research whatsoever to support that gut reaction. The plan sponsor isn't technically the offending party (I know, in many small plans, the functions of owner, fiduciary, plan administrator, and trustee are all combined in one person).

[david rigby]

Relationship of the questioner to the plan is important. No plan sponsor and/or trustee should take advice about a PT from anyone other than his/her legal counsel.

[Dougsbpc]

Thanks all for the replies.

Not sure why this one would need to go to counsel.

I agree in cases where the excise tax would be a high number or involve a complex transaction. In this case it was an honest mistake and the account it went into only earned .21%. The excise tax will be less than $400.

[BG5150]

Whose fault was it?

[Dougsbpc]

It was the fault of the trustee, who also happens to be 100% shareholder of the corporation that sponsors the plan. Also, it was his personal account that the $100k was mistakenly transferred to.