Dumb Business Decisions to Avoid
I recently read an interesting article in the Business Law Magazine 2008 for the Northern Nevada Business Weekly written by Craig Denney, a noted criminal attorney. Unfortunately I cannot figure out how to link it here, but the article summarizes some "dumb" decisions that businesses can make in these troubled times that could lead to criminal concerns. One of the points he makes is the criminal concerns about taking money out of the company 401(k) plan to pay bills.
Mr. Denney opines that under Title 18 of the United States Code, Section 664, taking money from the plan would be a criminal offense. I agree with him. I also think that taking money from the 401(k) plan to satisfy the financial needs of the plan sponsor would constitute a significant breach of fiduciary duty. That would subject the plan sponsor to ERISA penalties for misuse of plan assets. Plus it would be a prohibited transaction. But let's take it one step further. What about using employee deferrals for company activity without putting them into the plan in a timely manner?
Typically employee elective deferrals come out of the employee paycheck and are held in a company account until the employer submits the contributions to the plan administrator for investment. The employer has a "reasonable" period of time to submit those contributions. However, when those funds are in the control of the employer, they are still considered "plan" funds for the purposes of identification. They absolutely cannot be used for any employer purposes. They must be put into the plan, or more specifically, the individual account of the participant.
Notwithstanding the breach of fiduciary duty issues that would arise if an employer uses those employee deferrals, Mr. Denney's analysis leads me to believe that using employee deferrals for company purposes would likely be criminal as well. I had previously written an entry about US v. Jackson where the court upheld a 7-10 year criminal sentence for company executives who failed to make required EMPLOYER contributions to the plans. I can only imagine what would be the sentence for failing to put the EMPLOYEE money into the plans.
