Participant Directed Investments

[Guest Christina]

Employer wants a nqdc plan which mirrors the investment options of its 401k plan. The 401k plan is daily val'd and participants call the mutual fund company to change investment elections. (footnote: The employer understands that the earnings of the rabbi trust are taxable and does not want to fund the nqdc plan with coli because the 401k investment options are not available under any variable life product.)

Can anyone provide me with legal authority (or source from which I can find such authority other than the federal register in general) that permits such an arrangement? I'm worried that giving participants that much control would turn the rabbi trust into a "funding vehicle" for purposes of Title I.

I suppose the 457 regs could be used to argue by analogy, but such an analogy ignores the public policy of 457 to provide government and tax-exempts with a defined contribution plan they otherwise would not have.

If the plan is drafted to merely permit the participant to suggest investments and keep investment responsibility with a plan fiduciary, would a daily val'd feature work? If a participant uses the 800 number, how does the investment fiduciary get to review and possibly overrule a participant's suggestion? Does anyone have document language that is designed to give participants investment election?

Thanks in advance.

[Guest bswift]

there are plenty of rabbi trusts out there in which the participant is given the authority to direct investements. Alot of those arrangement are sold on the theory that they work just like the employer's 401(k) plan. if you look at some older plrs, the irs has said that giving the participants the right to direct the investments does not cause a constructive receipt problem. having said that however, the irs is concerned with the very issue you stated. the plan should provide the participant's directions are subject to the trustees right to approve the directions. i know that doesn't make much sense, but i hope that helps

[Guest Do]

I agree with bswift to extent that the IRS has held in PLR's that giving participants the right to direct the investment of their accounts does not cause current taxation to the participant under 451 (or 83). However, I think Cristina is wondering about giving participants the feature of DAILY VAL'D. I've read PLRs where the effective date of investment change was the following quarter. I don't know if the IRS has issued any PLR's on plans which have investment changes effective on the following business day. Does anyone know?