MICHAEL HATLEE

Custom risk based models (unless they are simply recommended allocations that are implemented via suggested investment elections) should be reported on 404(a)(5) as variable investments just like mutual funds. The expense information that must be part of the 404(a)(5) disclosure is also the same as mutual funds and is often the weighted average expense ratio of the underlying funds based on the mix in the particular model. Fees charged to the plan and allocated to the participants do not belong in the investment section of the 404(a)(5) disclosure. They must be disclosed but they are disclosed in the section describing other plan fees.

ETFs are fine as QP investment options. In the early days there were problems because ETFs could not be purchased in fractional shares. However, I believe that problem has been eliminated by most trading platforms.

EPCRS provides specific correction methods for failure to implement or follow participant direction regarding the amount contributed but I do not believe that EPCRS addresses investment direction snafus. However, assuming the plan document requires the Plan Administrator to follow the investment directions of the participants, this is a plan operational failure and eligible for correction under EPCRS. You simply won't have direct guidance on acceptable methods of correction. Nevertheless, I believe that the basic tenant of any correction made under EPCRS is applicable to your situation. Namely, you correct in such a manner that ensures that the participants are in the same position that they would have been had their direction been properly followed.

IMHO #1 is the "highest" form of handling participant directed investments in a QRP. We all know that participants do not always make good investment decisions. Thus, it seems that using #2 is a way of perpetuating these bad investment decisions (i.e. inappropriate allocations). If you have the time and the resources, I think you provide a lot of value using method #1. I always viewed #2 as the "lazy way out."

I agree with Patricia. Investment options are not protected benefits. Remove prospectively and let the one policy continue as is.

One question that has been assumed to this point is that we are dealing with a pooled trust, balance forward plan, with no participant investment election. Although I think I can infer the answer to this question (i.e. pooled trust, no direction) can you confirm this is the case. Secondly, government plans have documents and, just like plans fully subject to ERISA, the plan sponsor must follow the provisions of the plan document, Most plan documents have a section on "allocations" which may provide some guidance. Lastly, many people assume that government plans are totally free from any guidance under ERISA and the supporting code and regulations. That is not the case. Government plans are exempt from Title I and Title IV. However, government plans are subject to some provisions under Title II and Title III. If you are a fan of ASPPA ERISA Outline Book, if provides a nice summary of what does and does not apply to government plans.

A final housekeeping comment that may or may not be helpful. Since the transaction was an asset sale, the selling entity likely still exists. As long as the buyer did not adopt the plan, it is the responsibility of the seller to initiate the termination, and the costs and administrative headaches, that go with it.

So, bringing it around to your initial question, the buyer cannot force rollovers from the terminated MPP into their existing plan. Payment method will be totally up to the participant subject to plan options and J&S Annuity rules for married participants.

Have you considered the addition of a Self-Directed Brokerage option. This option would still be subject to benefit, rights and feature but it would allow any "investment expert" to direct their funds to a brokerage account (under the plan) and invest as they pleased.

You describe an asset purchase. With an asset purchase the form of subsequent movement from the plan depends upon, as David noted, whether the purchaser adopted the seller's plan. If the purchaser did not adopt the sellers plan you have a situation where the employees of the seller have had a separation from service with the seller and have the same rights that any participant would have in that case. They cannot be forced to roll the money to the buyers plan. As separated participants they have the right to take lump sum distributions directly (no rollover) or to roll the funds somewhere else. If the buyer adopted the sellers plan you have a very different circumstance. Since the buyer maintains another qualified plan (I assume a 401(k) plan), that plan is now what is referred to as a successor plan. That leaves the buyer with several options 1) Operate the plan as is for the "grace period" provided for in the regulations, 2) freeze the plan, 3) terminate the plan, or 4) merge the plan into their existing plan (or a combination of #1 and #2). Since a successor plan exists, regulations do not allow distributions of qualified money (i.e. deferrals, QNECs, QMACs) for a period of 12 months from the plan originally sponsored by the seller. Sorry, I probably gave you more than you wanted but the bottom line is that there is no such thing as a forced rollover (except cash outs of balances below $5,000).

It is extremely difficult to find definitive guidance in the prevailing wage world. Without any specific guidance I will likely test under 401(a)(4). Thank you.

I have a client with a document that allows prevailing wage contributions to offset employer matching (non-safe harbor) contributions. What test applies to the portion of the prevailing wage contribution used to offset a participant's employer match, ACP or 401(a)(4)?