Jon Chambers

Although I sympathize with your plight, I'm not sure you have much recourse. As I understand the facts, your former employer processed your initial distribution election based on the account value when your election was received. You then received an additional contribution. Although it would seem reasonable to also distribute the additional contribution, there is no law requiring it, and you didn't request it (I know, b/c you didn't know about it). You never received a statement, but the law only requires that statements be provided ON REQUEST, and you didn't request a statement (now that you have filed a request, you should get something. If you don't receive anything, you may be able to fashion a claim). While you may have a tenuous claim for breach of fiduciary duty for improper management of your funds, I'd suggest that you conclude that you're receiving $10,000 more than you expected, and that's not so horrible. Meanwhile, your experience points out the problems that are experienced by firms employing plan administrators with poor management skills. If you really want to push this, there are probably other things your former employer did wrong that may make them liable. Did you receive proper tax notices regarding your distribution? Did you receive a Summary Plan Description (SPD)? Have you been properly notified of plan changes? These are all legally required notifications that your former employer may have missed. Hope this helps, ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

Yes, they are securities. DOL would likely issue a PTE on request, but that takes time and money. Why can't the daily valuation recordkeeper account for the CDs like a money market--fixed NAV and an interest accrual? I'd suggest this is more a recordkeeping weakness than anything else. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

I have a client with a major national service provider that wanted to make a similar argument (their facts were a little different, in that they went Safe Harbor in 1999, but didn't make their 2000 notice timely, and wanted to take advantage of the delayed notice option available to new Safe Harbor plans in 2000). In this case, the service provider made the argument that deficiencies in the notice drafted for 1999 meant that the plan wasn't safe harbor in 1999 (it passed the tests), so could be construed as a new safe harbor plan in 2000. Of course, this wasn't run by the IRS, but there seems to be some precedent for the practice of considering a notice as a "bad" notice. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

That's an interesting question. I'm not sure you can stop the participants from attending the shareholders' meetings with their proxy instructions, even though they are technically not shareholders (trustee owns the shares). But if they don't provide their proxies to the trustee, how will the trustee know how they should vote? I'm currently working with a plan where DOL is reviewing proxy procedures, but they haven't discussed this issue. One practical suggestion. Have participants complete proxies in accordance with the shareholder challenging management. Then, when that shareholder makes their statement, they can indicate that they represent (indirectly) the plan participants voting with them. This keeps the trustee out of the issue, and protects participant confidentiality. I think from an ERISA law perspective,if the plan provides for proxy pass-through, the trustee is obligated to vote the shares in accordance with participant directions. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

I'm interested in acquiring survey data that provides information about the investment practices of large (more than $1 billion in assets) DB plans. To what extent do these plans use separately managed accounts, commingled trusts, institutional mutual funds, etc. What are typical (average, high, low, etc.) management expenses under each approach? Anyone have suggestions for good data sources? ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

Again, I believe I agree with the last couple of posts. My observations are as follows: 1) There's no sponsor responsibility for prudent selection of alternatives where there is no selection of alternatives (i.e., where participant can open brokerage account with any broker/dealer). 2) I've heard DOL opine at conferences that where any constraints apply (e.g., all brokerage accts must be with Schwab) that the sponsor then has responsibility for determining that all alternatives offered through the acct are prudent. Obviously, this is a practical impossibility. 3) We have many clients with brokerage accts, generally with a designated broker/dealer. In the real world, we deal with the fiduciary issues by: a) having a prudently selected group of core fund options available b) having the investment policy expressly indicate that the core fund options are the plan's primary investment vehicles, and that participants who choose to invest outside the core funds do so at their own cost and own risk c) charging participants for the incremental costs of the brokerage accts, reinforcing (B) above d) adopting some reasonably prudent constraints on investments in the brokerage accts to demonstrate some minimal level of fiduciary oversight (e.g., no investing in core funds, no muni bonds, no company stock, etc.) e) developing procedures for demonstrating the prudence of the sponsor's selection of the designated broker/dealer Will this be enough to get 404© protection? We don't know, but it seems reasonable to us. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

With regard to MoJo's comment regarding "informed" investment elections, the 404©regs set different standards for "designated" investment alternatives, and merely available options. Consensus of opinion in the community is that an investment structure that provides 404© required information for the designated alternatives, and general information relating to the brokerage account should receive 404© protection. This is one of the primary arguments for NOT having a brokerage account only structure. K Man's summary of Fred Reish's article makes the point that brokerage accounts work best in combination with a group of designated alternatives. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

Actually, I think Alan's post goes to one of the primary concerns with brokerage accounts--that not all securities are available through all brokerage firms. For example, if you want a Merrill Lynch mutual fund, you generally have to buy that fund from a Merrill Lynch broker through a Merrill Lynch account. If as a plan sponsor, if you don't offer Merrill Lynch brokerage accounts, you haven't made those funds available, thus you have constrained employees' choices (of course, similar availability arguments could be made for any brokerage firm). I've been at conferences where DOL representatives indicate that where you constrain choice in any manner, you impose due diligence review requirements for all funds made available. I don't necessarily agree with this argument, but I see their point. Let me make a different point. With brokerage accounts, your Investment Policy Statement (IPS) is crucial. It should define what fund selection and review responsibilities the sponsor is retaining, and what is passed to the participant and brokerage firm. To many plans' IPS are silent on this issue. I have a paper on our firm's web site that addressed brokerage accounts in more detail. You may want to check out www.schultzcollins.com. Hope this helps, ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

It depends on whether the plan is using the "deemed" hardship definition (which includes the suspension requirement) or the "facts and circumstances" definition (which does not). I'd start by reviewing the plan document, you may not have a big problem. In terms of penalties, you're looking at a qualification defect if your plan does require suspension. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

I have very limited experience. One thing I do know is that Canadian pension regs vary by province, so you would want someone with expertise in the applicable province. One other quick thought is that most of the small plan Canadian market is funded through RRSPs (a Canadian IRA equivalent), so the project may be pretty manageable. If your client is large enough, and the RRSP answer isn't simple enough, I'd try the multi-national consulting firms (Watson Wyatt, Mercer, etc.) ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

We've written a number of articles on this topic. You may want to review them on our web site at www.schultzcollins.com. A quick suggestion--I wouldn't take this engagement if this is your first RFP management experience. A 500 life $20 million plan is too complex (particularly with all the SEC implications introduced by company stock), and the potential liability is too great. At a minimum, I'd subcontract it to someone with plenty of experience in the industry. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

Yes. This is relatively common, and tracks logically through the 1099-R reporting. What's the question? ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

I've worked with some insurance companies that are willing to bill the incremental wrap fee. This permits participants to get the funds at true NAV. Perhaps your insurance company would be willing to bill half the fee, acheiving the objective without requiring an extra allocation. Worth asking anyway. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

Without having a specific cite, I'd be incredibly surprised if writing checks is permissible. I've heard of deferrals being deducted from a year end distribution, but I've never encountered check writing. I'd suggest these attorneys need to hire some ERISA attorneys to help them through the correction procedure. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

My experience in this area is limited, but my general sense is that KJohnson's observation is right on--an annual discretionary match implies a consistent annual rate for all employees, and should be adjusted annually. I vaguely recall a reg (which I think is in 401(m), but which might be in the ADP/ACP safe harbor) stating that the rate of match for any HCE cannot be higher than the rate of match for any NHCE making the same election. It's possible that an HCE could get a higher match rate by maxing out in the first 9 months of the year, while an NHCE with the same election gets a lower match rate because they continue deferrals through the zero match period. I'd also be interested in how the match formula change was documented. Bill notes that the change was announced to employees. But what was the underlying rationale for the monthly funding? A Board resolution approving periodic match for the foreseeable future, or just a "that's how we do it" understanding? Did the Board approve the change, or was the change made at management's discretion? Does the initial enabling Board resolution permit management to exercise discretion regarding the amount of the match? All these questions are important facts. I think that this question illustrates the inherent weakness of prototype documents that don't specifically define how the match should be operated. If the document defined accrual periods, and provided for flexibility for changing match in different accrual periods, most of the potential problems would disappear. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

I'd agree with JF. And from a historical perspective, the whole concept of 401(k) stemmed from a deferral of annual bonuses. 401(k) started as a bridge between cash profit sharing (bonuses) and deferred profit sharing (typical profit sharing plan). It's funny that we now think of a special deferral election on a year-end bonus as somehow unusual. I still work with lots of sponsors that permit special elections on the year end bonus, with the obvious caveat that the deferral must satisfy the 415 and 402(g) limits, etc. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

It's theoretically possible, but almost never a good idea. Introduces all sorts of SEC securities registration issues, in addition to a broad range of fiduciary considerations and operational problems. Recommend you talk them out of it in the strongest terms possible. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

Think the article referenced was on our website, www.schultzcollins.com, follow the "corporate retirement plans"/"articles" link on the NAV bar and you should find it. It's in PDF format. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

Selecting the designated provider is a fiduciary act. Although the sponsor probably wouldn't be liable for specific erroneous advice, if there was a pattern of imprudent advice (e.g. always recommending the provider's own investment products), it's conceivable that employees could claim the provider selection was imprudent, hence the sponsor would be responsible. There is little guidance, regulatory or case law, in this area. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

I have numerous clients that routinely use the trust-to-trust transfer approach. In most situations, the hourly and salaried plans have the same trustee and same investment options, so it's possible to do an in-kind transfer of fund shares, and avoid being out of the market. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

I wrote an article on this topic. It's on the BenefitsLink web site, and also on our website at www.schultzcollins.com, under "corporate retirement plans"/"articles" (follow the NAV bar). hope this helps. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

She could take a total distribution, roll over the non-loan portion directly, and make an indirect rollover contribution in the amount of the outstanding (taxable) loan amount, effectively repaying the loan into a tax-deferred vehicle (the IRA). ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

Profit Sharing Council also just did an interesting study on this topic. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

From memory, you use compensation for all participants who are eligible to defer (note that this may cause problems if you have different populations for deferrals and PS contributions). And I believe the 404 regs permit you to use total comp, not just eligible comp. Watch out, I didn't look this up. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004

I don't think that the argument that the bank trustee is responsible for funding the top heavy contribution will get very far. If the bank was supposed to perform the test, and did, the fact that the company didn't know how to interpret the information, or to act on test results, is essentially irrelevant. The Plan Administrator (typically, the company) is the fiduciary generally responsible for compliance with the Code. There may be an argument that the trustee shares co-fiduciary liability with the Plan Administrator, since they either knew, or should have known, that the top-heavy contributions weren't being made. However, most trust agreements are drafted (by the trustee) to circumvent this argument. Unless there is a reasonable testing argument (as suggested by other posters), the company should plan on making the top heavy contributions. ------------------ Jon C. Chambers Principal Schultz Collins Lawson Chambers, Inc. (415) 291-3004