Medical Practice 1 had a 401(k) Plan (Plan 1). Company dissolved and plan is instance of terminating. Most doctors went to work for Medical Practice 2 (new unrelated company.) Practice 2 sets up own new 401(k) (Plan 2.) Dr. K had self-directed brokerage account in Plan 1 (SDA1.)

Practice 2 sent deferrals and PS contributions to SDA1 for about six months. Then Dr K established a new SDA for Plan 2 (SDA2) and all assets were rolled over from SDA1 to SDA2.

What issues should I be concerned about? Does this constitute a PT? How do you book these transactions in the Forms 5500 for Plan 1 & Plan 2?

I think that you'd want to pursue a remedy through the VFCP of the DoL. You had Plan 2 assets for a time not being held by the trustee of Plan 2. That's a violation of the trust requirement. There is also a possible violation of the 'plan asset' regulation, DoL §2510.3-102.

While I suppose possible, I doubt the trustee of Plan 1 is a disqualified person or party in interest with respect to Plan 2. If not, then no PT.

If so corrected as a fiduciary obligation breach, then I'd report these contributions as if they had initially been made to and held all along as part of Plan 2, and never having been part of Plan 1.

Boy, I'm not too concerned... Personnally, I wouldn't do anything other than you've already done. I just can't see this being a big problem. No one was hurt, it's fixed going forward, it's much more related to a failure to complete a little bit of paperwork than anything esle.

OK, if you got audited, maybe the auditor would give you a little bit of a hard time... I think i's take the chance,

...which just goes to show, Austin Powers has more chest hair than I do.

Thanks for your answers. I think we'll follow Austin's way of looking at the problem. Failure is really insignificant and participant is in the same position he would have been if the error had not occur.

/jq

Some additional considerations, FWIW . . .

Doesn't seem to me that this was a mistake. It appears to be an intential action, a conscious decision to send assets to SDA1 until SDA2 could be established. The trustee, whether an individual or an institution, can certainly direct that plan assets be held by any custodian (within reason, of course), but the assets have to be held FBO Practice 2's employees and accounted for separately--and the custodian, & the fact of the self-direction, must be available to all participants in a non-discriminatory manner. Don't know if all that was present here.

If, somehow, it turns out that the plan's assets were outside of that plan's trust when being held in SDA1, then that's not a "no one was harmed" issue. It's a very serious exclusive benefit violation implicating diversion of plan assets, and DOL would not take it lightly. Under EPCRS, it's an egregious failure, and cannot be self corrected--don't know what the impact is under VFCP.