Pension Protection Act Blog

Friend of mine had a good question today from an accountant, who wanted to know if there is any penalty for filing Form 5500 with just a little bit of incorrect information.

Congress answered this question with 28 U.S.C. 1027, and the 9th Circuit Court of Appeals provides a pretty unequivacal explanation of how this Code section applies to Form 5500.

28 U.S.C. 1027 states:

Whoever, in any document required by title I of the Employee Retirement Income Security Act of 1974 (as amended from time to time) to be published, or kept as part of the records of any employee welfare benefit plan or employee pension benefit plan, or certified to the administrator of any such plan, makes any false statement or representation of fact, knowing it to be false, or knowingly conceals, covers up, or fails to disclose any fact the disclosure of which is required by such title or is necessary to verify, explain, clarify or check for accuracy and completeness any report required by such title to be published or any information required by such title to be certified, shall be fined under this title, or imprisoned not more than five years, or both.

The 9th Circuit Court of Appeals, in U.S. v. Wiseman, 274 F.3d 1235 (2001), discussed how 28 U.S.C. 1027 applies to incorrect information filed in Form 5500. Wiseman involved two plan trustees who were convicted of embezzling from a defined benefit plan because they transferred $1.6 million from the plan into the business when the business suffered financial distress. On Form 5500, question 30(e) was completed with a “yes” answer to the question of whether the notes to the appended plan financial statement disclosed any non-exempt transactions of parties in interest, which includes transactions between the plan and the business.

Question 30(f) was completed with a “no” answer to the question of whether the plan engaged in any such transactions that were not reported in question 30(e). The court said that, with this “no” answer, the plan’s trustee indicated that Form 5500 fully disclosed all transactions between the plan and the business. Because of this “no” answer, Form 5500 failed to disclose over $400,000 that had been transferred from the plan to the business’ operating account in 1990.

The plan trustee was convicted of violated 18 USC 1027, which the Court said criminalizes the making of known false statements, and the knowing concealment of material facts, in a document required by ERISA.

The plan trustee argued that his conviction should be reversed for two reasons. First, he argued that a “no” answer to question 30(e) would have been more misleading than the “yes” answer on the filed Form 5500. The court rejected this argument, stating that the evidence shows that the plan sponsor failed to disclose over $400,000. in prohibited transactions on Form 5500, even though his responses to the questions indicated that the information provided in the form was complete.

The second reason the plan sponsor argued that his conviction should be reversed is because there was no evidence that he knew the statement of plan assets failed to list the prohibited transactions. The plan sponsor testified that he turned all relevant plan documents to the accountant who prepared the statement. The accountant testified that the plan sponsor did not tell him about the transfers from the plan to the business. The court rejected this argument, stating that the plan sponsor signed and filed Form 5500, and the plan sponsor clearly knew about the transactions between the plan and the business.

The court cites two cases about Form 5500 in this opinion, stating:

See United States v. Martorano, 767 F.2d 63, 66 (3d Cir. 1985) (finding a violation of § 1027 where the defendant filed a Form 5500 that failed to disclose a prohibited transaction, and the defendant failed to disclose to his attorney the relevant information needed to accurately complete the form); United States v. Tolkow, 532 F.2d 853, 857 (2d Cir. 1976) (finding a § 1027 violation where the defendant signed and filed a false Form 5500, and the defendant failed to disclose party-in-interest loans to the accountant preparing the attached financial reports).

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