During transition from DC to 401K, can funds be deposited into money m

[Guest michael4509]

regretfully, i found this site after the fact...My company began the process of seeking a letter fo determination from the IRS because we wanted to begin offering a 401K plan.

During the transition period we asked the trustee of the old plan to deposit all fund into a money market account. They remained there for the 3rd quarter of 2000. During the 4th quarter of 2000, we filed for a determination letter with the IRS. our existing pension plan required this of us.

At that time,for the whole 4th quarter of 2000, they took the funds off deposit with the MM account and put it back into the general stock fund. This was done without our consent or knowledge.

does this sound legitimate? please help.

[rcline46]

You cannot apply hindsight to trustee decisions. Because it frequently takes 6 months or more for the IRS to rule on a plan termination, it would not be considered prudent to leave the money in a money market.

Consider if the market had gone up and it was left in the money market - would you be upset?

[Guest michael4509]

so basically what you are saying is that the decision made by the trustees are final, and are unquestionable?

also, is this a usual and customary practice relating to employee benefit plans? meaning...for a plan termination, the funds must stay invested in the general stock fund because of the length of time it takes for the irs to respond and for a "rollover" into a new plan set up by the employer, it would be ok to have the funds deposited into a money market?

--i edited the above in after i wrote the below message--

thank you for your insight. but, the question is not if i would be upset, rather, the questions are, is this a legitimate action taken by the trustees? can they do it without our consent? remember, we gave them written instruction to place the funds into the money market account. also, consider this...we requested the letter of determination at the end of december before the holidays, if i was informed that the funds were to go back into the stock fund and be exposed to a fluctuating (downward trending) market for the full 4th quarter, i could have delayed my decision to file until 1st quarter 2001.

i am a layman in these matters, and i am just looking for what is really right. it just does not feel right to me that the trustees could move the money back into the fund without telling us. the kick in the ass is that we made the decision to go to a 401k plan so that the employees fund could be self directed, and here the trustees acted without our KNOWLEDGE OR CONSENT.

the history of why/how we had to terminate the old plan is too long to go into...had i had the correct information, i would have made sure that the funds were "rolled over" into the new plan.

furthermore, all of the employees were told that the funds were on deposit in a money market account since 7/1/2001.

[RCK]

Michael4509, I think your posting in a different thread said that you were new to all this stuff.

Assuming that is true, here's the issue: it all depends on who has the responsibility for making investment decisions. If the trustee is truly that, and they do have the authority, then what they did seems like a reasonable decision.

If they are really just a custodian of the assets and the fiduciary responsibility for the investments lies with you, then they have clearly blundered by doing what they did.

We sponsor a number of plans, and always try to have the trustee be the bank/insurance company/fund that handles the funds. But investment direction is never delegated outside--it belongs either to the participants or to a designated person or committee.

RCK

[Guest michael4509]

RCK. thanks for the input. yes, i am not familiar with the ins and outs of the "pension/benefits game." the reason i wanted to change the plans was to give the employees the ability to decide how much risk to take, and what funds they would want to contribute to.

even if the person/trustee that made the investment decisions was allowed to do so in this case...i would expect to be advised that the funds were to be moved back. afterall, they requested in writing that we stated we wanted the funds moved to a money market account at the outset of ceasing contributions to the plan.

i am not disputing that the trustee "had the authority" or "had the best interests of mur fund" in mind when this was done. i do question the lack of notification that this was going to take place.

[rcline46]

There is nothing that requires a trustee to inform the participants or plan sponsor of investment decisions. Under their trust agreement they have discretion to the limits of the 'prudent man' rules.

However, if you are the plan sponsor and gave instructions to put the funds in a money market, they trustee does have an obligation to do as requested or to tell you why they will not do so.

[Guest michael4509]

what are you referring to "prudent man" rules.

also, you hit the heart of the matter...i am the sponsor, and i did ask the plan to put the funds into a money market.

this all seems sort of futile. i am thinking of having an attorney look into it. i certainly am not an expert in this area, however, you certainly seem like you are...thanks for the help!

[Richard Anderson]

Who is the trustee? Many small plans name one or more of the firm's owners as trustees.

If the custodian of the plan assets moved the plan's assets without authorization, they should be liable for any plan losses, and should be willing to restore those losses. Have you asked them to do so? If so, what was their answer?

[Guest michael4509]

Richard Anderson...i am not the trustee. i have not made any decisions as to how our contributions were invested. (i mean i understood what the overall investment picturewas, but i did not direct the fund into any particular stock or investment)

the one time that i was given the choice as to where the funds should be invested, was at the point where i decided to move the company pension plan to another company.

as for their answer regarding why the funds were moved back into the general stock fund? they basically said that's the way it is, and it is the law. irs rules are very complex etc. etc., when a plan is terminated.

if you read the second post on this thread, that opinion was basically the pension plan's position, termination takes so long that the funds had to be re-deposited back into the general stock fund.

it just doesn't seem right to me.