Bonding Requirements- CR

[pbarrett]

Has anyone heard that there has been a recent change and contribution receivables are no longer considered "non qualified" for bonding purposes?

[Belgarath]

I'm not aware of any change. Doesn't make sense to me that they would ever be considered a "qualifying asset" - I'd be surprised if such a change were seriously considered, and even more surprised if it took place.

Of course, my ability as a prognosticator is generally questioned by anyone who is sane, so I'd advise a second opinion...

[pbarrett]

Corbel is taking the position that contribution receivables are no longer to be considered non qualifiying assets.

I received an email from the Atty that led the 5500 workshop who wrote yesterday " Corbel reconsidered it and come to the conclusion that the receivables are not treated as plan assets for this purpose. Hence, you should not count them in the numerator or the denominator in determining the 95% qualified plan exemption. You do not need to bond for them (and indeed probably cannot)."

I put a call into the DOL research department too but have not heard back yet.

I guess this is still a "grey area."

Pat

[GBurns]

This is not my subject but I have to ask ... What are contribution receivables?

If these are monies expected to be but not yet received, why would they not be a plan asset?

What makes them different from accounts receivables in the commercial sense? Commercial receivables are secured debts and an asset.

[Archimage]

Yes, contribution receivables are contributions that are due to the plan. Yes, they are considered plan assets for most purposes. The question that is being asked is should they be considered for bonding requirements. I agree on the position stated previously that they should not be counted for bonding purposes. I think the argument is that the actual concrete assets are not in the plan yet so they should not have to be bonded. I hope that makes sense.

[GBurns]

Most assets are never in anything. The books of account only hold the nominal value not the actual item.

An asset account for a fully owned forklift does not ahve the actual forklift sitting in the account, it has the value. An investment account that invests in stocks does not have the actual stocks or stock certificates in the account it only has the value. If invested in housing it does not have the actual houses, it has the value.

Like all asset accounts and their underlying assets, there is the risk of non-payment, non remittance by the employer, attachment by creditors before transfer, bankruptcy etc etc.

As a result assets are insured and bonded as applicable.

Why would you want to give different accounting and securitization treatment to what is just another asset account? Especially one where the Trustees might be held responsible for non-collection etc.

[maverick]

I think pbarrett is saying [You do not need to bond for them (and indeed probably cannot).] that an insurance company would not issue an ERISA fidelity bond for the receivable portion of plan assets.

[GBurns]

I do not see where there has been any mention of what any insurance company has said, so that raises the real question, .. What has any insurance company said?

[Archimage]

I believe another argument that has been addressed is that assets have to be bonded if they are "handled". Receivables are not an asset that can be handled therefore they are not subject to the bonding requirements.