DoL Sues Medical Practice for Profit-Sharing Plan Loans

October 9th, 2011 by JBWK

The Department of Labor has alleged, in a lawsuit filed in federal court, that a physician, as the sole owner and CEO of his practice, illegally funneled nearly all of his practice’s profit-sharing plan assets back to the practice to fund its operations. The plan held retirement plan assets for four other employees of the practice.

The plan held almost $500,000 in assets; the doctor, as the plan administrator, loaned all but about $2,000 back to his practice to facilitate its ongoing operations. There was no security for the loans, and no promissory note was executed.

Alleging a whole host of ERISA violations, the DoL sued for the physician’s violation of his duty of prudence, duty to diversify, and the several prohibited transactions he consummated by loaning money back to the practice.

Small businesses–especially those who serve as their own plan administrators–have to be extremely careful when dealing with plan assets. While those assets may seem like a good source of much-needed cash, ERISA’s strict prohibited transaction rules can land you in serious trouble.


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