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Distribution amounts on termed plan


pbarrett

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We have a ps plan with an 8/31 pye. The Trustee decided to term the plan 2/28/03. The plan assets at the time of the last val (8/30/02) were appx $800,000. It was decided to do an interim val as of 2/28/03. (This is a straight forward ps plan, annual val, 6 participants, one HC who has 76% of assets.) The feeling was that the interim val would be in the best interest of the NHCE's due to the market being down. All were vested at 100% etc and distribution election packets were sent in March. The elections were made. The payouts were processed. The HCE was told not to remove his account balance until all the NHCE's received their full balances. The general consensus was the investments would drop. Of course, the opposite happened. Between 3/1/03 and today, the HCE has made almost $180,000. The participants funds were distributed June 4th. The HCE believes these funds are now his. In fairness, he said he would have taken the full loss. The assets are pooled, he guaranteed payment as of 2/28/03. Our firm is partially in error I believe because we held up the distributions until the last participant make his/her election. One particpant with over $100,000 waited over 70 days from the election date to get the funds. So.... any opinions as to what we do now? The employees portion of the gain would be 24% or $43,200. There are 5 participants with balances of $2,000 to $125,000.

The doc is in order. We do not plan to submit for any type of determination.

Help. Any thoughts would be appreciated.

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Others may disagree, but if I were the Trustee, I'd put the brakes on my greed and pay the participants their share of the earnings. If a participant ever got wind of this and made a formal complaint to the DOL, I suspect they wouldn't agree that the Trustee/HC/owner is "entitled" to all this gain.

As an aside, if the consensus was that the funds would lose money in this short term, why wouldn't any prudent fiduciary have liquidated the investments and placed them in something that at least guaranteed the principal and a small return?

The Trustee should check with legal counsel, but I surely wouldn't want this plan scrutinized if I were in the Trustee's shoes...

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I am inclined to agree with Belgarath on this issue. Although there may not be a problem technically with the 70-day wait, I don't think this situation passes the smell test.

As Belgarath pointed out, if the presumption was that the value of the assets was going to drop, a fiduciary acting in the best interest of all plan participants should have taken steps to avoid those losses.

It sounds to me like the Trustee took the chance with the hope that the investments would increase in value. Wouldn't this be considered acting in his own best interest?

As a final note, a recent audit we participated in drew scrutiny because rank and file participant's were paid out first (based on the most recent valuation), while the value of investments continued to rise. The Employer was required to recalculate benefits.

...but then again, What Do I Know?

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I am curious as to why an interim valuation of the plan was performed. I have never done that in a pooled plan, but rather prepared the election forms with estimated amounts and finalized on the day of distributions with each person's exact share of the trust.

Ask yourself what would have been done with no owner to take the loss.

"What's in the big salad?"

"Big lettuce, big carrots, tomatoes like volleyballs."

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For what it's worth, I think there is a potential discrimination issue with what I view as one plan termination valuation date for all of the NHCEs and a second plan termination valuation date for the sole HCE.

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