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In at least one case, the court found that the trustee's selection of valuation dates was not an honest exercise of discretion, but rather was a disloyal effort to shift an allocation of investment losses from his account to those of former partners and employees. Janeiro v. Urological Surgery Prof'l Ass'n, 457 F.3d 130 (1st Cir. 2006). What do BenefitsLink mavens think about specifying in advance the conditions under which a plan will use an interim valuation?

Even with publicly traded stock there are securities law issues and there are accounting issues. None are show stoppers, but the additional complexity and potential for mistake and misunderstanding are a consideration.

The real issue in my mind is fair = consistent. Sure the market could be up a bunch this year but a few years back it was down a bunch at this point. If you are consistent about it then in the long run it seems reasonable to figure it will all balance out in the long run. That was the basic thinking back in the '90s when I did work on a good number of annual balance forward plans. The thing you need to avoid is allowing people to game the system. Back in 2008 I worked on an annual valued PS plan. Most distributions happened shortly after the annual work was done. However, without thinking they had allowed for in-service distributions years prior for anyone over 59.5 at request. These payments were based on the prior 12/31 So in 2008 a bunch of the 59.5 people figured out in Oct of '08 they could get their money out based on their 12/31/2007 balance. There was a "run on the bank" if you will of these people getting their money out without having to take the '08 losses. This was millions of dollars and the loses were in effect being picked up by the people stuck in the plan. The problem was they were inconsistent. There was only one group that could in effect wait all year to see how the market was doing and then decide to take their money. The provision was quickly changed. So to me the way to do this is make the rules and give as little discretion to anyone as possible Then be as consistent as possible with those rules. In the long run it ought to be fair as it should wash out in the end. Also no one can be accused of gaming the discretion in their or someone's favor. Maybe I just stated the obvious and what was basically said the same as above but that is my 2 cents worth.

Yes, Let me count the ways.

^-- agreed. One case where annual valuations will likely continue is for ESOP's that hold company stock that is not publicly traded. Valuation of the stock requires audited financial statements, which take a month or two, so the stock price from the valuation is generally 2 to 3 months old by the time it is determined ... not to mention the costs of the full company audit and the valuation. The Plan Administrator can do an interim valuation, but unless the circumstances are very unusual, there is reluctance all around to go through this process more than once a year.

The loan is part of a participant's account balance, why wouldn't you include it? It is simply another asset of the plan.

No.

I have always just said "no" to annuity contracts, but then again, I say "no" to most insured products. I know some people use them, but when the insurance company asks the actuary to sign-off on the investment, my alarm bells go off. I can only assume they are expecting to be sued at some point and are looking for people to share the blame.

One other note... Since in the prior years there was another participant, I assume you were electronically filing the 5500. For one of the plan we have, the 5500 was electronically filed while there was the other participant. When the other participant terminated and we only had the owner/spouse, we continued to file the 5500 electronically, but with the "one-participant plan" box checked.... which essentially makes the 5500 an EZ (many 5500 questions are not required, and the 5500 is not on the public efast website). We did this since we thought that if we stopped electronic filing, a flag would be raised somewhere that the 5500 was not filed (or timely filed), even if the EZ was filed directly with the IRS, and we might have to spend time getting this straightened out. We haven't had a problem with this yet.

When electing "S" Corp status, the 2 1/2 month retro election would not be made. A short tax year filing for the C corp would be made and perhaps a short tax year filing for the "S" corp would be made depending upon the timing of the election. The timing of the transaction can certainly coincide with the fiscal year year of the C corporation. And of course, hopefully someone has reviewed the timing of the transaction as it may relate to the accounting issues of LIFO versus FIFO (if applicable), inventory accounting, etc.