Impermissible Withdrawal

[pensionam]

Hi! I have a PBGC covered plan where the owner took an impermissible withdrawal of $250k from the plan in June 2025. To correct, he returned the funds to the plan in February 2026 but with no earnings adjustment. Are earnings required? He wants to self correct and include a memo in the plan's files.

[Bri]

I'd be treating this as a short-term impermissible loan and expect the appropriate interest returned to the plan as well to fully correct it as a prohibited transaction.

[FORMER ESQ.]

Not automatically a PT. It depends on whether the $250K withdrawal was rolled over to his IRA/other qualified plan or if he took a distribution as cash or segregated it into his own personal account. The former is arguably not a PT, while the latter is absolutely a PT.  

[Lou S.]

11 hours ago, FORMER ESQ. said:

Not automatically a PT. It depends on whether the $250K withdrawal was rolled over to his IRA/other qualified plan or if he took a distribution as cash or segregated it into his own personal account. The former is arguably not a PT, while the latter is absolutely a PT.  

Wouldn't that assume the owner took an allowable in-service withdrawal and a 1099-R would have been issued?

Since the thread title is "impermissible withdrawal" I'm assuming that there was no paperwork or even distributable event for the withdrawal and this is a PT that should be corrected as such. 

I agree with Bri above.

[FORMER ESQ.]

15 hours ago, Lou S. said:

Wouldn't that assume the owner took an allowable in-service withdrawal and a 1099-R would have been issued?

Since the thread title is "impermissible withdrawal" I'm assuming that there was no paperwork or even distributable event for the withdrawal and this is a PT that should be corrected as such. 

I agree with Bri above.

Wrong. It would technically not be a PT if rolled over to IRA, but it would still be an operational failure. 

[Paul I]

@pensionam should get the complete story before any more actions are taken.  It seems @pensionam was (hopefully) unaware of the owner taking the withdrawal, and this is the case then likely the owner had a self-serving reason.  Some as yet unanswered questions based in part on the comments above are:

• Does the plan permit in-service withdrawals?  If yes, were plan procedures followed correctly?
• Who received the money that was distributed?  Was it rolled to another qualified or IRA?  Was it to the owner?  Was it to someone else?
• Why did the owner decide to take an in-service withdrawal?  Is there any documentation for that reason?
• If it was a direct payment, was tax withheld?
• Have the proceeds of the withdrawal increased in value, and if yes, where are these earnings being held?
• Who prepared the 1099R for the distribution and is the owner reporting the distribution on their 2025 tax return?
• Does the plan accept rollovers into the plan?

Once these questions have answers, then I expect that the owner and the plan will need guidance from legal counsel on the steps that need to be taken to correct what happened.  The resolution almost certainly will be more than just returning $250,000 to the plan.

[pensionam]

On 3/17/2026 at 3:47 PM, Lou S. said:

Wouldn't that assume the owner took an allowable in-service withdrawal and a 1099-R would have been issued?

Since the thread title is "impermissible withdrawal" I'm assuming that there was no paperwork or even distributable event for the withdrawal and this is a PT that should be corrected as such. 

I agree with Bri above.

Owner was not eligible for an in-service withdrawal and we found out about the withdrawal when we began doing the 2025 annual administration work this month. No paperwork and money was transferred to a personal investment, not an IRA.

[pensionam]

2 hours ago, Paul I said:

@pensionam should get the complete story before any more actions are taken.  It seems @pensionam was (hopefully) unaware of the owner taking the withdrawal, and this is the case then likely the owner had a self-serving reason.  Some as yet unanswered questions based in part on the comments above are:

• Does the plan permit in-service withdrawals?  If yes, were plan procedures followed correctly?
• Who received the money that was distributed?  Was it rolled to another qualified or IRA?  Was it to the owner?  Was it to someone else?
• Why did the owner decide to take an in-service withdrawal?  Is there any documentation for that reason?
• If it was a direct payment, was tax withheld?
• Have the proceeds of the withdrawal increased in value, and if yes, where are these earnings being held?
• Who prepared the 1099R for the distribution and is the owner reporting the distribution on their 2025 tax return?
• Does the plan accept rollovers into the plan?

Once these questions have answers, then I expect that the owner and the plan will need guidance from legal counsel on the steps that need to be taken to correct what happened.  The resolution almost certainly will be more than just returning $250,000 to the plan.

The plan only permits in-service withdrawals at NRA. The owner has not reached NRA. The owner took the money for himself and transferred it to a personal investment, not an IRA. Direct transfer of $250k, no 1099-R, no withholding. Typical brokerage account situation where the advisor took the written direction of the owner to transfer the money out of the account. The plan does accept rollover contributions.

[Paul I]

@pensionam that fills in a lot of blanks, and makes it very difficult to believe that this is anything other than a prohibited transaction, and it cannot be ignored.

I suggest that the owner should be urged emphatically to seek ERISA legal counsel to work him to identify a path forward.  The Department of Labor in particular can be very aggressive in pursuing a plan fiduciary who uses plan assets for personal gain.

Some of our BenefitsLink colleagues may have some thoughts on what steps you and your firm should consider taking to protect against getting drawn into the situation.

[david rigby]

In addition, there is likely a Reportable Event, since the original post told us "PBGC-covered". 

You might find help (perhaps a similar fact pattern) in the PBGC Blue Books, found here:  https://www.pbgc.gov/employers-practitioners/legal-resources/blue-books. 

Note also the cumulative index found here:  https://www.ccactuaries.org/docs/default-source/meetings-and-education-documents/2019-blue-book-index.pdf.