Lawsuit Settlement Proceeds

[Molgilny89]

Plan participant’s account is hacked by an outside fraudster. Participant sues plan sponsor for negligence. The two parties end up settling before trial. Can the plan sponsor deposit the settlement amount into the participant’s plan account? I seem to remember some IRS guidance saying it’s allowed if it is the result of a dispute that would have resulted in fiduciary breach. Does anyone have a cite? 

[Peter Gulia]

A restorative payment is not a § 415(c) annual addition.

It’s enough that there was a “reasonable risk of liability for breach of a fiduciary duty[.]”

You can read the whole clause here: 26 C.F.R. § 1.415(c)-1(b)(2)(ii)(C) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.415(c)-1#p-1.415(c)-1(b)(2)(ii)(C).

I wrote Treasury a comment that led to this rule.