Trading Errors

[austin3515]

A TPA just told me that all trades are executed on a shares certain basis. If there is a trading error related to the deposit being a day or two late for whatever reason, then the TPA needs to ensure that the right number of shares is deposited to the account. Therefore if the price of the fund decreased, the TPA can keep the extra money, and if the price increases, the TPA needs to make up the difference.

Per the TPA this is very isolated (a few times a year). HAs anyone seen or heard of this? Is this a common policy? They made it sound like everyone does it...

[Guest oxdougw]

We have always made sure the error was in favor of the participant. If the late trade shorted shares to the participant, we as the trustee/recordkeeper made up the difference and made them whole.

On the other hand, if the late trade created a windfall profit, we left that money in the plan and placed it in forfeiture suspense.

Our research turned up no official guidance on the issue.

[Guest pjb]

Is this based on something the TPA guarantees by contract or is this based on something in the plan document? What is a late deposit?

[austin3515]

He didn't quote, but that is a good question. It's not part of the Plan Document.

[Guest death and taxes]

I think that any gain made on a trading error must be credited to the plan--not retained by the TPA. This smells like a prohibited transaction. ERISA 406 indicates that a PT can be the

"transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan"

If not a PT, what protection do plan participants have that the TPA (or whomever) is not trying to "market time" transactions for gain to themselves?

[austin3515]

Nothing is more certain than death and taxes that's for sure.

I totally agree with all of you. I'll let you know the resolution