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Retirement Plan Sponsor Official Makes False Form 5500 Statement Resulting in Felony Conviction and Order to Pay Over $150,000

    Client Alerts
  • April 18, 2008

A former president of a Charlotte company recently pled guilty to making a false statement on the Form 5500 that he filed for a company-sponsored profit sharing plan.  Specifically, he answered “No” to the question that effectively asks whether the plan engaged in any prohibited transaction when, in fact, he had withdrawn $200,000 from the plan and invested the money in other outside business interests.  As a result of the guilty plea to a single felony count, he was sentenced to one year of federal probation and ordered to pay over $138,000 in restitution, a $5,000 fine, and up to $10,000 for administrative fees of a successor trustee.  He is also permanently prohibited from serving as a fiduciary to any ERISA-covered employee benefit plan.

This case highlights a few important points.  First, it serves as a reminder that egregiously unlawful conduct with respect to ERISA benefit plans can result in both civil and criminal penalties.  Second, though fairly obvious, plan sponsors must know that they are prohibited from taking retirement plan funds and using those funds for outside business interests, as well as for business purposes of the sponsoring company itself.  The penalties for even an inadvertent prohibited transaction can be quite severe.  Third, each party who signs a Form 5500 should confirm the accuracy of all responses and never sign a form that contains a representation the party knows to be false.