RMD's & Prohibited loans

[TPApril]

One person plan in which participant seems to believe she is above the law.

Problem 1 - prohibited loan of $200,000 with no interest in resolving it

Problem 2 - no interest in taking out RMD by due date, she says there is no cash in the plan

TPA has explained the repercussions, qualification issues etc. but she simply is not concerned. Due to relationships, the easy solution of firing the client is not so easy.

So attempting to think creatively, looking for some thoughts - if the loan were corrected and 'converted' into a distribution from the plan, can that distribution be treated as the RMD? Loan is from a year prior though than the year of the RMD. Challenge is she does not want to submit for VCP on this.

[Mike Preston]

I know you don't want to hear it, but............

RUN!!!

[Peter Gulia]

If "there is no cash in the plan", what are the plan's remaining investments (beyond the loan receivable and the claim for restoration and disgorgement on the prohibited transactions)?

[Mike Preston]

My guess would be illiquid assets.

[TPApril]

investments are mostly non participant loans which i have little details about. also real estate, ltd partnerships.

i agree with the advice to 'run' but as i implied, it just aint so easy due to certain relationships...

[Belgarath]

If you submit under VCP, just possible the IRS might run it over to audit as an "egregious" situation anyway...

If a person has a failure (or multiple failures) but isn't willing to fix it, then there isn't really anything that can be done.

Were the 5500 EZ forms filed correctly (under penalty of perjury, no less)?

Relationships can be tough, but I don't really see any alternative other than saying something to the effect of, "your plan is out of compliance and can be disqualified upon audit, and you are potentially subject to all kinds of penalties for prohibited transactions, etc., etc., and you need to seek advice of counsel to determine your possible course(s) of action and the risks/rewards associated with each."

[TPApril]

The relationship issue that i'm referring to is that the individual in question is part of an affiliated service group. are there repercussions to the other plan in the asg?

[Peter Gulia]

Perhaps this is an opportunity for BenefitsLink readers to ask ourselves a professional-conduct question:

If a retirement plan's sponsor prefers not to correct the plan's tax-qualification defects, may a practitioner:

(1) inform his or her client about the exposures, risks, and consequences [see 10 C.F.R. 10.21];

(2) insist that the practitioner will not sign or otherwise be associated with a return or report that is less than complete and accurate;

(3) do nothing else (if his or her client does not ask for further work)?