Periodic plan merging into daily plan

[katieinny]

Company A (daily plan) buys company B (periodic plan). The final valuation date for the Co. B periodic plan is 6/30/03. However, the final valuation won't be complete until some date in August probably.

1) Should the assets be transferred on 6/30 and held in a money market account until the valuation is done, and then transfer the assets into individual accounts?

2) Or is it better to keep the assets where they are until the valuation is done, and transfer the assets in the middle of the quarter?

It looks like there will be a black-out period for those assets in either case. Is there any way around that?

[MWeddell]

Assets should be transferred on 7/1. If you wait to transfer assets until August, the new recordkeeper typically won't be able to provider recordkeepering services until the date of the asset transfer.

How you handle the transferred assets is a fiduciary decision. The best method is to get 100% of participants to elect where they want their accounts invested in the new provider's investment fund line-up, transfer their accounts into those funds on 7/1 using estimated percentages from the 3/31 periodic valuation, and then truing up the results in August once the 6/30 periodic valuation is complete. Of course, getting 100% of participants to make the election is nearly impossible if you're dealing with a substantial number of participants and often the new recordkeeper doesn't want to deal with the above procedure. A far more common method is to map on 7/1 the assets to the most similar funds in the new investment line-up that compare to the funds in the old investment line-up, end the black out period in August once final records are transferred, and then encourage participants to make their own investment elections then. Note there's probably no ERISA 404© protection on money that stays in the mapped funds. Transferring all of the money to a money market account is an option that most recordkeepers support, but typically not recommended. Choosing the fund at the low-return, low-risk end of the risk / return spectrum for retirement savings may not be the most prudent choice and getting all participants to make their own elections afterwards can be difficult.

A black-out period probably is unavoidable. Once in a blue moon, there'll be a recordkeeper who will still accept investment transfers during the period before the transfer of assets date to the date final records are received and implemented. Such transfers are done on an estimated basis with the recordkeeper truing them up afterward. I don't know of any major recordkeeper currently pushing that solution. Note though that a black-out period is not a big deal for the folks in the periodic valuation plan (if it was valued per quarter for example, effectively, 89 days out of every 90 have been blacked out routinely) and shouldn't impact the participants in the daily valued plan.

Good luck. Ask your daily valuation recordkeeper this same set of questions too.

[katieinny]

Thank you for your help. I am in the process of working with the recordkeeper for the daily plan, but as you said, they want to keep things as easy as possible for them, so it's difficult to get them to talk about alternatives.

If we transfer the assets on 7/1, I want to make sure that the blackout period can be limited to the merging employees, and will not be forced on the existing participants. In other words, it's not an all or nothing kind of thing.