self direction of account

[eilano]

We've got a client that allows participants that have account balances of at least $10,000 the opportunity to self direct their accounts. Another client is thinking about adopting this policy also but only allowing those participants with balances of at least $25,000 to self direct their accounts. Is there any problem establishing a threshold this high for self direction to occur?

[rcline46]

This is BRF problem. Do the testing to make sure it is a non-discriminatory group it is offered to. Don't forget the BRF is a double test for current availability and effective availability.

Generally speaking, this is not a good idea as the trustees still have the problem of insuring that no prohibited transactions occur and most don't have the knowledge or time to watch it and the brokers frankly don't give a d... hoot.

[Guest Harry O]

I don't think this is a BRF problem if it is available to all participants who satisfy a reasonable minimum account balance threshold. Note that the regulations allow you to ignore minimum account balance thresholds for purposes of testing a BRF. Reg. 1.401(a)(4)-4(B)(2)(ii)(D). This is very helpful. However, the minimum balance threshold must not be so outrageously high that the BRF is not effectively available to all employees. A threshold of $1 million would obviously be a problem . . . I would think $10,000 or $25,000 would be defensible (assuming a good portion of the participants have balances in excess of the selected threshold).

[jaemmons]

You may also want to clarify if this is part of an administrative policy to the plan or a limit established by the financial institution. If it is the latter, no discrimination issue. However, I agree with Harry O that the level of the limit would be a fiduciary concern, especially if the self-directed account are receiving higher returns than the trustee directed account.

[Guest rderbyshire]

The BRF reg cited by Harry O lets you disregard a condition that the accrued benefit be "less than or equal to a specified dollar amount." This is a condition that the accrued benefit be "more than" a dollar amount in order to invest through SDB. I don't think the condition can be disregarded so the BRF must be tested for current availability.

[IRC401]

The sponsor should also take a look at what happens to plan administration fees. Will there be a signifcant shift of plan expenses to the accounts with less than $10,000 such that they will be paying much higher costs than the self-directed accounts?

[Guest stryan]

To IRC401,

Why would the allocation of plan adminstration expenses change with the inclusion of IDAs? Arguably, it is often more difficult to collect fees from multiple IDAs, but it shouldn't impact their allocation.