Jon Chambers

URA stands for unrealized appreciation (a tax benefit that may apply to distributions of company stock). Brokerage accounts are pretty complex. You may want to review my article on the topic at http://www.schultzcollins.com/ (I call them Unrestricted Investment Accounts, but we are talking about the same thing. Hope this helps! Jon

I'm an investment advisor with a number of law firm clients. I agree with most of the posts, that historically few firms contributed for associates, but that this is starting to change. I'm not sure that I have enough information to describe a "typical" formula, but feel confident asserting that many firms are now making contributions for associates.

The stock is definitely not Treasury stock--it's owned by the trust. I think that makes it issued and outstanding. I'm not sure I understand the second part of the question. The matching shares are owned by the trustee, with all Plan assets, and the individual's account represents a beneficial interest in the equivalent number of shares. If your question goes to the registered owner of the shares, that should be the Trustee, as owner of all the shares.

With regard to the 404© question, it's clear that 404© protection doesn't apply if the employee's direction isn't followed. Whether that is a fiduciary breach is a much more complex question. In terms of the general thread and question, selection of a bundled provider is just the tip of the fiduciary duty iceberg. I concur with the earlier posters, and suggest that the individual asking the question should engage a competent legal and/or investment advisor to get a complete explanation of fiduciary responsibility. It just can't be done in a message board format.

You have asked a question with an enormous number of issues. Rather than attempt to address all the issues (which would take way too much time), I suggest you review the Department of Labor's "Frost" Advisory Opinion 97-15A and "Aetna" Advisory Opinion 97-16A. If you are affiliated with the funds that you offer, and aren't familiar with the PTCE, you should also review PTCE (Prohibited Transaction Class Exemption) 84-24. Hope this helps. ------------------

I'd be careful with charging vendor search costs to the plan. Certain plan operational responsiblities are defined as "settlor" functions, meaning that the sponsor is responsible for them, and costs for these functions shouldn't be charged against plan assets. Plan document drafting costs are one example of a settlor function. Although I can't cite regs, it seems that vendor selection would also be categorized as a settlor responsibility. Just because the DOL wants sponsors to select vendors responsibly, it doesn't necessarily follow that the plan should pay the consultant's fee. I do vendor searches, and the client has never charged my fee against assets. Search fees are typically moderate (in the $5K to $10K range), and most clients typically see a 1 year hard dollar fee reduction of many times this cost, so it makes sense for them to pay search costs from company funds. Just my opinion however. ------------------

A company makes an annual 401(k) match in the form of publicly traded company stock. Currently, they value the stock based on the average market price on the day preceding the date of transfer to the trust. They are wondering what latitude they have to use other valuation dates--e.g., date that the Board approved the contribution, year end valuation date, etc.--and whether these valuation dates need to be reflected in the Plan document or other materials. I'd be interested in any thoughts or experience out there! ------------------

Two words--procedural prudence. Sure, there are all sorts of ERISA scare stories, but if a sponsor is procedurally prudent--i.e., if they do the right things, like acting in the best interests of participants and beneficiaries, doing appropriate due diligence, hiring qualified advisors, periodically monitoring selections, etc., I doubt that they will get into any real trouble. The issue may be that they are too small to be able to afford the right advisors. In that case, a SIMPLE IRA might be the better choice, with lower limits but less liability. Fear of lawsuits is understandable, but, in my opinion, not a legitimate reason to refrain from offering a competitive retirement program.

I don't see a problem with this. Remember that 404© requires at least 3 core options, which, classically, include a money market fund, bond fund and general stock fund (often an S&P 500 index fund), but there is no reason why a stable value fund couldn't be one of the 5 non-core options, particularly if there are no unreasonable transfer restrictions.

Recognize that full service brokerage firms like Merrill Lynch and Smith Barney have financial products to sell, and that by using their educational materials, the plan sponsor is implicitly endorsing these financial products. This may bring attendant liability. I concur that you should be well familiar with DOL Interpretive Bulletin 96-1, and personally recommend that you get your communications materials from advice vendors, such as PwC Coopers, rather than financial product vendors. But that last part is just an opinion from a cautious person, and is not intended to denigrate the work that firms like Merrill Lynch do. Their materials may be great.

According to HR Investment consultants, plan costs for a 2,000 life plan with $60 million in assets range between $4 and $45 per year per participant for recordkeeping and administration, and between $0 and $27 per participant for loan administration. Total plan costs, the most important figure, for bundled services including trusteeship (including investment management, far and away the largest cost) average 1.10% of assets, or $656,950 per year. Investment management comprises $593,586 (90%) of this total. Total fees range from $290,498 to $1,534,400, with most of the variance attributable to different investment fee structures. Your company is large enough to engage a consultant to do a customized benchmarking study to determine whether your fees and services are reasonable. This type of project should run a few thousand dollars, given a range of costs of more than $1 million annually, in our opinion, this is money well spent.

This is both a securities law and ERISA question, and I'm not sure I'm qualified to fully respond to either. I'm aware that investment management firms can offer their own publicly traded (ie, mutual) funds through their own plans at the best possible fee structure, or better, with no PT concerns. I worked with one mutual fund company that offered its new funds through the plan, but they waited until the funds went public before offering them. My gut says that you may have all sorts of accredited investor issues, and probably exclusive benefit issues also, if the primary purpose is to generate "seed" money to bring the funds to critical mass. But you really need an expert's opinion on this one.

The letter the last poster referred to is the "Frost" opinion, DOL Advisory 97-15A (there was a similar letter 97-15B for Aetna, that applies to insurance companies that are not trustees). Bottom line--you can keep 12b-1 if you are licensed to accept them and your aggregate compensation is reasonable in light of services rendered, and you are not "self-dealing" by directing investments to commissionable funds, and you disclose amount of 12-b1 compensation to sponsor. As an aside, returning 12b-1 fees to participants would almost certainly violate NASD rules against rebating commissions.

We're an investment advisory firm, and I'd love to get 80 to 100 basis points for fund selection and monitoring. However, fees in the range of 10 to 40 basis points are more common for mid-size plans ($5 million to $50 million for us). This would typically include investment policy, fund selection, monitoring, constructing allocated portfolios, investment communications and/or education (96-1 compliant of course), etc. Fee varies with service required. For larger plans, we generally bill out hourly at $210 to $250 per hour.

Many providers offer self directed accounts, using numerous types of delivery. I would add Merrill Lynch and Fidelity as two large players that offer a proprietary brokerage feature, and United Missouri Bank and North American Trust Company as providers that will permit non-proprietary brokerage. If you are considering this, there are a host of issues to consider. I wrote a paper on the topic--Dave has posted a couple of my other papers on Benefitslink, maybe he might add this one. I know this may sound self-serving, but I'd suggest discussing the concept in detail with a plan consultant and/or ERISA attorney before proceeding. Self directed accounts can work well, but can also snake bite you if you aren't careful

Another consideration is whether the number of employees in the plan forces the non-publicly traded stock to be registered with the SEC. This a securities law question that I'm not qualified to address, but if it applies, the costs and trouble of the SEC registration, and the disclosure implications for the plan would likely make the proposed approach untenable.

Great question. I have a plan that intends to adopt the 3% across the board safe harbor on or about 1/1/99. How prevalent do people think the safe harbors will be, and which (matching or across the board)will be more popular?