Two plans - one brokerage account

[BFree]

Two companies that are related, but not part of a controlled group, have their plan assets held in a single brokerage account.

Aside from administrative concerns, what other issues (legal, liability) should the plan sponsors be aware of? We are trying to get the money split into two accounts, and would like to raise issues besides "it is difficult to administer."

Thanks in advance.

[mbozek]

How about liability? Under this arrangement what would prevent the participants in plan from A claiming assets in the brokerage account which may belong to plan B. If the funds are comingled who wants to pay for the cost of lawyers and accountants to decide whose assets belong to which plan. Also there ccould be disputes on how gains, losses, contributions and withdrawals are credited in this comingled fund. Plans can comingle funds in a master trust but there are additional admin costs. Its cheaper to keep the plans assets in separate accounts of the broker.

[Jon Chambers]

MBozek is correct that this is a "master trust" as the term is described on (among other places) the 5500 instructions. I have had some very limited experience with master trust accounting, and the experience I had suggests it should be avoided if at all possible. Some of the implications for the 5500 alone (from memory): direct filing requirements with DOL for master trust, separate audits for plans and master trust itself, non-standard (and somewhat convoluted) reporting for plan assets held through master trust. I'm sure others can add additional disadvantages.

What are the arguments in favor of using the single brokerage account?

[BFree]

The arguments for keeping the single account include lower direct costs with a larger asset base, and inertia.

Thanks for the replies.

[Jon Chambers]

I'd guess the second argument is the one that would be more difficult to overcome. It's unlikely that the direct cost savings outweigh the direct costs of properly accounting for a master trust. Of course, if those master trust accounting costs have not been incurred in the past, you get back to the various liability issues raised previously.

[Guest Retina]

So is it ok to have "related" employers who are not technically part of a "control group" contribute to a master trust? If not, what are the consequences? Can a multiple employer plan be part of a "master trust?"

[Jon Chambers]

It depends what you mean by "ok". Is it legal?--yes. Is it complicated?--yes. The only time that I have worked with related employers that were not part of a controlled group and that maintained a master trust for non-union independent plans sponsored by the related employers, the primary plan was quite large (more than a $billion), and the plans of the related employers were also significant, although smaller. The employers decided that the benefits of a single trust outweighed the compliance costs of maintaing a master trust. I doubt that smaller employers could rationally reach a similar conclusion.

Union plans operate under a different (generally simpler) compliance structure. While I understand that a union multiple employer plan could be structured under a master trust, I don't believe that this is necessarily a requirement for a union multiple employer plan (I believe the union can sponsor the plan, have a regular trust, and simply mandate that the employers contribute to the trust). But beware of advice from me on this topic--I don't generally work with union plans.

[Guest Retina]

I guess I'm confused b/c from what I'm reading here and in other posts (and the 5500 instructions),there needs to be "common control" amongst employers for there to be a master trust.

My specific fact pattern involves 4 employers that are in a control group, three of which sponsor single-er plans, the other a multiple-er plan. They're sold on the master trust idea, but not sure they can do it b/c certain other employers who have adopted the multiple-er plan, while loosely affiliated w/ the group, don't fall w/in the apparent "control" requirements for a master trust. Could this be a group trust or collective trust?

[E as in ERISA]

It's not a "master trust" in the 5500 sense if the companies are not part of the same controlled group. (Maybe it is in the "master plan" context, but I doubt that is what they have here).

The trust needs to satisfy the "group trust" rules under Rev. Rul. 81-100 to avoid violating the "exclusive benefit" rules. "Exclusive benefit" is the big risk. If as mbozek notes, plan A participants can legally get to plan B's assets, then the exclusive benefit rules are potentially violated.

[Guest Retina]

After looking at the applicable 2520.103 regs in more detail, it seems it may still qualify as a master trust. I say this b/c the regs say that a master trust is a trust in which the assets of of more than one plan SPONSORED by a single employer or group of employers under common control are held. Here, the adopting employers of the multiple employer plan are not sponsors of the plan (they're just participating in it). The sponsor is the employer in the control group who set it up and maintains it. Does that interpretation work?

Are you saying even if it does qualify as a master trust that 81-100 must be satisfied?

[E as in ERISA]

I wouldn't rely on that distinction. When do you ever have a plan "sponsored" by several companies?

I would qualify it under 81-100 even if it is a master trust. Master trust is primarily just filing status. It still has to satisfy the exclusive benefit rule.

[Guest Retina]

I think my point is that the multiple employer plan is not "sponsored" by several companies, just the company in the control group that established the plan. The fact that there are non-control group companies participating in the multiple employer plan should then be irrelevant b/c they're not in actual fact "sponsors" of the plan, or am I missing something?

[E as in ERISA]

When do you see multiple employers in a controlled group all "sponsoring" the plan? I think that the answer is never. One is the sponsor and the rest participate. Accordingly, when the second part of that definition of master trust apply? Never. To give it meaning, I read it as requiring either that you have multiple companies within a controlled group participating in one plan.

[Jon Chambers]

To clarify my earlier comments, the "master trust" Form 5500 filing that I referenced was both a "Multiple Employer" plan, because it covered more than one employer that was not part of the same controlled group, and a "Master Trust", because it covered more than one plan of a controlled group. I think my earlier comments may have attributed the "Multiple Employer" characteristics to the "Master Trust" filing status. Sorry for any confusion that I created.

The bottom line is that this particular structure accomplished what Retina was looking to do--technically unrelated employers participated in a master trust arrangement. These plans were all individual account arrangements, that required that each plans assets could only be used to pay benefits for that plan. The master trust arrangement was solely in place to provide economies of scale for the investment managers.

[Guest pelliott05]

I have a similar question about my companies plan. Our plan currently has a pooled fund that is administered by our company and is set up as a trust with a bank as the trustee. We are thinking about adding a brokerage account to the current plan and would most likely be set up as a trust with the brokerage company.

Would we need to file both of these trusts as a master trust or can they both file their own 5500's but still fall under the original retirement plan that is set up already?

Thanks...