High minimum investment discriminatory??

[Guest halka]

First... Yes, I've scanned the multiple threads dealing w/ plan/broker minimums for self-directed accounts. Don't want to reignite that fire, but would like to learn any actual experience, rulings, and opinions on this variation. Plan allows any participant (willing to pay fee) to have a self-directed brokerage account. An HCE participant wants to purchase a limited partnership interest. The minimum LP investment exceeds the entire balance of most plan participants, but I'm still inclined to side with the non-BRF faction. However, because a participant would also have to be an "accredited investor" - which can be met by an annual income threshhold, does this become a compensation based benefit ?? THANKS

[Tom Poje]

Try the ERISA Outline Book (9.129 of the 2001 edition)

while no true guidance exists, 1999 Q and A ASPA conference, the IRS voiced an 'opinion' that if fees are reasonable and not determined by the employer, then fees could be ignored when determining availability. IRS also said other factors would include if reasonable alternatives existed for those with smaller balances.

By the way, if you don't own the book, it easily passes the 'availability' test! ;)

[KJohnson]

I must admit, I find the reference in Sal's outline a little confusing at least in the 2003 eddition that I am looking at .

In 2.e3) of that section he says that minimum account thresholds for an investment option are a BRF that must be tested.

In 2.e3)a) he then says that a difference in FEES for investment options is a "closer call" However as an example of a difference in "fees" he returns to the 1999 ASPA Q&A regarding minimum account thresholds.

Returning to the question presented I would think that the distinction might be what is the investment option offered? If the investment option is the directed brokerage account and everyone can have directed brokerage then I think there probably is not a BRF problem.

In other words if a Plan offers 10 different mutual funds and a directed brokerage account and there is no minimum for any of these options I would think that you would not have a BRF problem. However, once inside the directed brokerage account if a participant decides to invest in an option that has a minimum investment threshold even I (as a BRF "hawk") would have problems thinking that this is a BRF issue. Could you say that since one account balance is sufficient to buy 1,000 shares of IBM while another is only sufficient to buy 100 shares of IBM, the ability to buy 1,000 shares of IBM is a BRF that must be tested?

[mbozek]

There is only one IRS ruling which provided that an plan could not restrict self directed accounts only to HCEs. There is nothing on point because there are too many possible variations- e.g., plans merge and odd assets are acquired, plan permits self directed accounts which allow options restricted only to accredited investors, some options require minimum balances, investment option closes to new investors, etc. The IRS does not want to be involved in deciding what investment restrictions are BRFs and which are not so they have adopted a don t ask, dont tell policy.

[Jon Chambers]

I agree with KJohnson. Let's use Berkshire Hathaway stock (A) as an example. The last trade was at $63,600/share. A large balance participant purchasing Berkshire Hathaway through an SDBA is highly unlikely to be deemed to be exercising a BRF that is not available to other participants, provided that the other participants have access to the SDBA, and can purchase other securities.