In-Kind Distributions

[Guest erisafried]

A client maintains a 401(k) plan with some grandfathered participant accounts containing "esoteric" (but permissible) assets from way back when. Current recordkeeper and trustee don't much care for this stuff and would clearly like to see it all out of the plan ASAP.

The proposal is to amend the plan to permit these assets to be distributed in kind. The one twist is that the participants whose accounts hold these assets are uniformly highly-compensated, although there are a relatively small number of them at this point (maybe 1-2% of the participant population).

I suppose we need to check the numbers to ensure that we don't run into any 401(a)(4) issues here, but can anyone think of any other landmines in this situation?

Thanks!

[mbozek]

There is a continuing discussion of how the BRF rules of Reg. 1.401(a)(4)-4 apply to certain options that are disportionately available to HCEs See. 2/28 post on options in plans for HCEs by KJohnson. This situation is uncommon when plans eliminate odd asset investments but cannot distribute the funds because of plan restrictions. The problem also arises when a investment funds is closed to new investors which prevents NHCEs from contributing assets.