Naughty owner

[Cynchbeast]

Leave it to our clients to drive us crazy.

We have attorney client who was desperate for money and withdrew over $470,000 from his plan in 2012 without consulting us. After running calculations for 2012, this left his own profit sharing account overdrawn by approximately $42,000, and left the trust with only $50,000 remaining to cover other participants' balances totaling about $92,000.

We have referred him to an ERISA attorney to resolve this - we will not get involved. However, I have to prepare the 5500-SF for 2012, and I have never encountered this before.

1) I assume the transaction has to be reported on the 5500-SF somewhere, probably in line 10. Can someone please advise me where they would report this, and do I report the entire $472,9500 transaction, or just the $42,000 he is overdrawn?

2) I also assume we have to prepare a Form 5330. Same basic question - where on the form is this reported and what amount do I list?

If not for the clients, we might still be sane. But we would also be broke.

[Effen]

It is a prohibited transaction. Assuming he had no distributable event, most likely the entire $472,950 would be reported. If he can put the money back you can call it a PT loan, in which case the excise tax only applies to lost earnings. There is an on-line calculator that will give you the amount of the lost interest - check the DOL site.

This should all be handled and directed by ERISA counsel.

Also, as a word of caution, I had a very similar situation occur about a year ago. The client ultimately put the money back and terminated the plan. Last week I got a call from a DOL criminal investigator investigating the situation.