Termination For Embezzling Money + Profit Sharing

[metsfan026]

So this is a new situation for me.  We have a client who terminated a long-time employee in '22 for embezzling money from the company.  Technically the participant is eligible for a contribution in '21.

My understanding is that, regardless of the reason for termination the participant is still required to make a contribution for them.  I just wanted to confirm that's accurate?

Also, is there anything that the employer can do in terms of withholding the Profit Sharing account to recoup the money that was stolen?  I know that's more of a legal question, but I wasn't sure if anyone knew.

Thanks everyone!

[Mr Bagwell]

There is a thread or two in regards to this.

If I recall correctly, there wasn't much an employer could do to recoup moneys from the retirement plan.

The best advice was to work with the prosecuting attorney to work out a deal of repayment.

Not sure if any law changes have been made to help these situations...

[david rigby]

Use the Search feature, with words such as "embezzle", "theft", etc.

[Peter Gulia]

About your second question:

Among the exceptions to a retirement plan’s anti-alienation provision is the United States’ enforcement of a judgment imposing a fine or restitution regarding a crime.

Beyond ERISA’s and the Internal Revenue Code’s provisions, the employer’s or plan administrator’s lawyer might consider these statutes: 18 U.S.C. §§ 3316, 3556, 3663, 3663A, 3664; 28 U.S.C. §§ 3001-3308.

With increasing frequency and intensity, Federal prosecutors seek restitution for a victim, and do so in ways that enable invading the wrongdoer’s retirement plan benefits.

For an illustration of one of those ways, see BenefitsLink’s recent news about Evan Greebel:

https://benefitslink.com/news/index.cgi/view/20220824-173391

https://benefitslink.com/news/index.cgi/view/20220826-173452

[Bird]

I agree the contributions have to be made. We did have a situation like this and were able to get the participant to agree to pay back some of the stolen money with plan money. It was done right in the courtroom. Part of the deal for a more lenient sentence.

[msmith]

This happened to me (twice - same plan). The resolution was similar to Bird's.

[ESOP Guy]

Yup talk to the prosecuting attorney and any plea deal will include using plan assets to pay the company.  To be clear the person has to take a distribution and then use the distribution to pay the company.

 

Years ago I had a bank that had this happen.  Literally, the bank wrote a check from the ESOP to the person standing in one of their banks.  The lady deposited the check into an account set up just for this transaction.  She then signed a form allowing the bank to take all the cash. 

[pmacduff]

I assume it makes a difference whether or not the Employer pursues criminal/civil action(s) against said former employee?  I would think if you fire someone for that reason but do not pursue either or both of those avenues then the Employer would have to not only make the contribution due but also pay the balance out to the former employee.  

I'm curious more than anything because we had a rash of these types of embezzlements in our area many years ago.  (Employees embezzling from their small employer.) All different types of employers where some pursued action against the former employee but some did not due to the expenses involved.   

[ESOP Guy]

Yes, it makes a difference.  In my case the client turned the evidence over to the local prosecutor.  So the government had most of the expense as it was a criminal case.  The bank employee was looking at jail time.  The prosecutor was willing to talk plea deal with a lot less jail time (maybe home arrest even) if part of it was paying the bank back.  

The plea bargain in a criminal case was the hammer to get the person to sign the money over to the employer. 

[Luke Bailey]

On 9/2/2022 at 11:02 AM, Peter Gulia said:

Among the exceptions to a retirement plan’s anti-alienation provision is the United States’ enforcement of a judgment imposing a fine or restitution regarding a crime.

Right. This is under MAVRA, Mandatory Victims Restitution Act, but requires a Federal crime. You typically have that in a bank embezzlement, but not in many other contexts.

On 9/2/2022 at 4:29 PM, ESOP Guy said:

Years ago I had a bank that had this happen.  Literally, the bank wrote a check from the ESOP to the person standing in one of their banks.  The lady deposited the check into an account set up just for this transaction.  She then signed a form allowing the bank to take all the cash. 

This transaction is specifically provided for in Treas. Reg. 1.401(a)-13(e). The assignment is revocable up to the moment the funds are transferred.