Participant refuses to take prohibited assets out of his account

[Trekker]

Participant is an owner of the Employer and trustee of PSP. Self-direction for all participants. This participant invested portions of his plan account in property he owns outside the plan. Participant has access to other funds sufficient to purchase the bad asset back from the plan but refuses to do so.

Over $200,000 involved.

This is a sketchy facts situation, but I am hoping a quick answer may be found. A VFCP application was ready to go when the participant balked.

Thanks.

[MoJo]

Resign.....

[david rigby]

...in writing.

[Trekker]

That would fix prospectively, but the bad assets still remain in the plan in the participant's account.

[BG5150]

That would fix prospectively, but the bad assets still remain in the plan in the participant's account.

"Hey, buddy. You have some bad assets. We told you about it and how to fix it. You've chosen not to take our advice. Professional integrity prohibits us (no pun intended) from continuing our business relationship.

See ya, wouldn't wanna be ya."

In other words, no longer our problem.

[david rigby]

Of course, before you resign, you did advise him of the problem, in writing, didn't you?

[Trekker]

Oh, yes, he was advised in writing many times and had intended to purchase the ill-fated assets out of the plan. For some reason, he is backing off that idea. Even if he resigns, his account remains in the plan with the bad assets. Aren't the other trustees at risk?

[ESOP Guy]

They are not recommending the employee resign. They are suggesting you and your firm resign from whatever relationship you have with this client. These people are more trouble then the revenue they bring you is the point.

Firing a client is always hard because they are hard to get but some time it is the best idea.

[QDROphile]

While resignation is certainly an option and may be the most attractive choice for the adviser because of general risks of dealing with people who do not want to comply with the law, is there some governmental or professional regulatory or ethical mandate that compels resignation? Generally, an advisor who is not a fiduciary, does not mis-advise, and does not assist (including by concealment) should not be responsible for malfeasance of the responsible authorities. Egregious violations such as theft fall under other considerations. An adviser has no resposibility to correct a prohibited trnasaction unless the adviser is a party to the transaction. The prohibited transaction must be properly reported (e.g. on Form 5500). I am not arguing against the wisdom of resignation, but I would like to know if there is some authority that all the responders are observing.

[Trekker]

Thanks, all. Since I am unable to provide more facts at this juncture, don't take time to advance it further on my behalf.

[david rigby]

Before going to any extremes, consider whether there are other "advisors" that might be able to assist. For example, does the sponsor have an accountant or attorney that might be able to offer an opinion? Sure, this is an "end run", but it may produce a better result for the plan, and (indirectly) for the other participants.

[Trekker]

Accountant and attorney are both involved. We had this thing almost resolved (the right way). Thanks, guys.

[BG5150]

QDROPhile: I don't think people are recommending resigning for liability reasons or ethical reasons. Just the potential headaches down the road.

[Kevin C]

I agree with QDRO. If this is the only issue with the client, I don't see a reason to resign. If this is one more issue with a client that has been a royal pain to deal with, it may be time to resign.

If they don't follow your advice, document your advice, report it properly and go on. In addition to the 5500 questions, I would send them the 5330(s) for the PT. Hopefully, at some point IRS/DOL will be in touch with the client to get the matter resolved.