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April 21, 2009

Business Owner Ordered to Pay $38,500: Funds Stolen by Financial Advisor

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The Employee Benefits Security Administration (EBSA) division of the Department of Labor (DOL), recently issued Release Number: 09-260-BOS/BOS 2009-093, in which they explained that the owner of a small business was ordered to restore $32,263.51 to the 401(k) plan that was adopted and maintained for the employees of the business, and pay a civil penalty of $6,452.70 to the DOL.

According to the release, the DOL filed a lawsuit alleging that the business owner failed to discharge his fiduciary duties with respect to the plan for a specific period. The business owner hired a financial services company to provide investment and financial management services to the plan, during which time the owner of the financial services company converted thousands of dollars of funds from the plan for his own benefit.
In his capacity as trustee of the plan, the business owner‘s fiduciary responsibility includes:
oAdequately monitoring and controlling the activities of the financial service provider, as they relate to the plan
oOverseeing and controlling the plan’s assets, and
oSecuring a bond to protect the plan’s assets.
According to the DOL, the business owner failed to carry out these duties.   As a result, he was required to repay $32,263.51 (representing Principal and Interest) to the plan. He was also required to ensure that the amount was properly allocated to participants’ accounts and provide proof to the DOL that the payment has been made to the plan.
Comments from RetirementDictionary.com
Many small business owners who establish retirement plans for their businesses are sometimes not fully aware of their fiduciary responsibilities. In many cases, they do what they think is right, by hiring ‘professionals’ to take care of various aspects of the plan, including managing the investments and acting as the trustee of the plan. To ensure that they understand and perform their plan-related duties properly, small business owners should consider consulting with the plan administrator or an ERISA attorney. Talking to the financial services provider who will custody or manage the plan assets may not be sufficient, as often these individuals are usually not very proficient in the area of plan administration.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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