Combined trust for multiple plans of single employer.

[David MacLennan]

A client of mine has 3 plans, PS, MP, and DB. He wants to consolidate the assets for the 3 plans into a single trust. I have seen this done only once with a combined PS/MP plan trust. I was wondering how common combined plan trusts are for a single employer. Obviously an annual allocation each year would be needed to determine each plan's assets, and the plan/trust documents would need to conform. Any potential problems? Any comments would be appreciated.

[rcline46]

MP and PS combine as one trust is fine. DO NOT combine with DB plan. DB has too many actuarial losses to get mixed up with PS/MP combo, and frequently investment objectives are different.

[David MacLennan]

Different investment objectives are not an issue for these small (1-person) plans (I wouldn't be able or willing to influence a small plan sponsor with regard to their investments anyway!).

Given the above, there are no actuarial issues with respect to investment gains/losses - no different from having the DB trust separate, unless I'm missing something.

Are there any other reasons why this is a bad idea?

[AndyH]

I do not agree that it is generally accepted that comingled assets are fine.

The IRS has a problem with it, though I don't know off the top of my head why. I recall at an ASPA session about two years ago Holland and Wickersham both took issue with comingled assets, and then the moderator asked the audience who among them had clients with comingled assets and about 85% of the attendees raised their hands. Many laughs.

Perhaps someone else can shed some light on the reasoning, as I simply don't remember off hand.

I just felt a dissenting position should be stated. I can do some digging if no supporting responses are made.

[AndyH]

This was the subject of Q&A#27 from the 1999 General Session. Naturally, the answer was "discussed from the podium". My recollection is simply that both Jim Holland and Richard Wickersham expressed the opinion that comingled trusts were unacceptable. I have no notes to substantiate their reasonings, unfortunately. But this should at least provide some caution.

Maybe someone else has more concrete notes from that session?

[rcline46]

Jim and Dick said that but without substantiation as to WHY they did not like them. In fact the 5500's themselves provide rules as to how to divy up the assets, so de facto they are acceptable. Anyway, it is an asset issue and that is governed by th DOL anyway.

[Guest PAUL DUGAN]

I agree when dealing with 2 dc plans this is a DOL issue. However when yoy mix in a DB it can become an IRS issue. The asset allocation would effect the minimum and maximum contribution limits. As an actuary I would not sign a schedule B if assets were comingled.

[David MacLennan]

I just don't see yet where the problem lies with having a comingled trust. Perhaps I'll try to contact Wickersham, if that's possible. I suppose the commingled trust could in general allow for more errors and mischief, and a lack of absolute certainty for transactions and asset values for a given plan. Still, it seems that if a consistent allocation method is employed it would be reasonable. Especially since Master trusts do the same thing on a larger scale.

Regarding an actuary's responsibility raised in the last msg, if the trustee reports the assets to the plan administrator and/or the actuary, why would an actuary have a problem with performing the valuation? Unless fraud or error is suspected, it doesn't seem it is the actuary's business to oversee the trustee's duties.

[david rigby]

I agree with Paul Dugan. I would not want to do a valuation and/or Schedule B where a DB plan assets are commingled with a DC plan. In a DB plan, all assets are available to pay any benefit that is due; that is, no dollars are "allocated". If you have a mixture of plan assets, then the amount of assets for each plan can be "muddy" (that is the technical term).

Even if it is OK to have commingled assets, but why take the risk of confusion.

[RCK]

I agree with David MacLennan and disagree with pax. Specifically with pax's comment about the amount of the assets being "muddy". The amount of the assets is not muddy--it is very specifically defined. The actual stocks' bonds, etc. would indeed be muddy, but the amount certainly is not.

Wearing my plan sponsor hat: we have about a dozen plans (6DB, 3 Profit Sharing, a Money Purchase and 3 401(k))participating in three interlocking trusts,with roughly a billion in assets. And it's been through IRS and DOL audits without a problem.

Wearing my Enrolled Actuary hat: I would definitely sign the Schedule B--the assets are clearly defined and valued.

Disclaimer: this has to be set up right and run right.

[david rigby]

Uncle.

If RCK has it "set up right and run right", I can't argue with that.

Thanks for the real world situation.