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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The fact that 401(k) plan participants received their full distribution upon the plan sponsor's discontinuation of operations did not excuse the company's failure to remit elective deferrals to the plan, according to the U.S. Court of Appeals at San Francisco (CA-9) in United States v. Eriksen.
Embezzlement of elective deferrals
The Chairman and CEO of the company were convicted of embezzlement or conversion from an ERISA plan under 18 U.S.C. 664 and of making false or misleading statements in an ERISA benefit plan document under 18 U.S.C. 1027.
The court initially explained that 18 U.S.C. 664 requires: (1) the 401(k) plan to have been established or maintained as an employee pension benefit plan subject to ERISA Title I, and (2) the defendants to have either: (a) embezzled or stolen funds of the plan, or (b) unlawfully and willfully converted funds of the plan to their own use or the use of another.
CCH Note: Prior to addressing the conditions of 18 U.S.C. 664, the court dispensed with the argument that there was insufficient evidence of criminal intent to support the convictions. The claim that a party was only "borrowing" funds from a plan and intended to repay the amounts is not a defense to embezzlement or conversion, the court stressed.
The appeals court initially ruled that the 401(k) plan had been established or maintained as an employee pension benefit plan subject to ERISA Title I prior to the company's retention of the elective deferrals in its general account. The court next dismissed the contention that keeping elective deferrals longer than the 15-day deadline specified in the governing plan asset regulations does not constitute embezzlement or conversion. When the defendants commingled employee plan contributions with the company's assets to support their failing business, the court explained, they intentionally used the employees' assets for an unauthorized purpose, in violation of their fiduciary duty.
False or misleading statements in ERISA plan documents
The defendants further maintained that the misstatements in the Participant Valuation Report were not material. The court initially stressed that materiality is not a prerequisite condition for, or element of, a false statement conviction under 18 U.S.C. 1027. However, the court added, the information in the Valuation Report indicating that the deferrals had been remitted to the plan was "undoubtedly" material to the participants.
In next determining whether the Valuation Report was required by ERISA, the court noted ERISA requires the maintenance of records which will provide the information and data from which information for required documents may be verified, explained, and clarified. The court explained that the Valuation Reports fell within this definition because they were used by the defendants to complete the required Form 5500 annual reports.
Finally, the court rejected the defendants' post-hoc rationalization that the misstatements should be excused because the participants were ultimately repaid. To accept such a defense, the court reasoned, would undermine a clear purpose of ERISA to provide plan participants with sufficient information to enforce their rights.
For more information, visit http://www.wolterskluwerlb.com/rbcs.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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