And now for something completely different!

[SMB]

Doc (of course) currently sponsors a PS Plan through his medical practice. He would like to direct his own investments, but does not want the "hassle" of offering this option to other Plan participants.

Doc is also an owner in a separate business venture, totally separate from his medical practice, consisting of Doc and his business partner (no common law employees).

Doc wants to know if his "other business" can establish a PS Plan, to which he would rollover his balance under the medicla practicie's Plan (via an in-service distribution) and then be able to self-direct the investment of his account?

He would roll his balance over to an IRA but wants the added ERISA protection of having his money in a qualified plan.

Other than possible controlled-group issues and not intending to make "recurring and substantial" contributions to the "other business" PS Plan, are there any other issues (pro or con) to consider?

Please weigh in! Thanks!

[Guest TrustMe401k]

Other than possible controlled-group issues and not intending to make "recurring and substantial" contributions to the "other business" PS Plan

Enough said...right? Even if these aren't enough, it doesn't pass the smell test. Let a good DoL investigator in there and see what they think. Is the Doc the only one who would be able to take to In-service withdrawal? What are the conditions for doing such? 59.5? 100% vested?

Smells like the stuff in the bed pan to me. But, I'm very conservative by nature. On the other hand, let the Doc do it (they're smarter than everybody anyway) and see what happens.

[Larry M]

Let's see, Doc wants to direct investments, but does not want to have the hassle of letting any other employees direct investments.

Why not put all the plan assets in one pool and appoint the Doc as the investment committee?

Note though, if he is trying to be very aggressive in his investment policy (the real estate just east of Mt. Helena can be purchased at a distressed price....) all he has to fear is the wrath of disgruntled participants and their attorneys ...

[Blinky the 3-eyed Fish]

Why not put all the plan assets in one pool and appoint the Doc as the investment committee?

This works except if the doc's investment strategies violate the prudent standard criterion.

SMB, you say that the doc has a totally separate business with a business partner. What is the ownership split, because it might not be a controlled group? If that is the case and it's also not an ASG, well then your idea works fine as long as in-service withdrawal opportunities pass BRF testing.

[AndyH]

Last dumb question of the year (hopefully):

If there are no contributions to two plans, one of which allows self direction and the other does not, is BRF testing required (for the self directed option)? There is a free pass for coverage. Does that give a free pass for BRF testing undeer a(4)?

[Bird]

If he's willing to set up another plan for the other business, and eat the expenses associated with it, then he could simply have one plan for him in his practice and one for everyone else. All provisions are the same so you don't have discrimination issues, and each is trustee directed; he just happens to be the only participant in the one where he wants to play around.

It's hard to believe this is better (in terms of expenses) than simply allowing self-direction in one plan, but there it is.

[AndyH]

Agreed, of course. Duh. I was trying to extend it to a different BRF which was anything but clear, which is why it was a dumb question.

What if, for example, two plans were identical except they had different vesting schedules, and there were no contributions to either. Is their BRF testing technically required of the separate vestings schedules even in a year that nobody benefits for 410(b) purposes?

Say the plan covering only the owner is 100% immediate and the other plan has a 5 year cliff (or even a 2/20 top heavy schedule only)? That is what I was wondering about.

[Blinky the 3-eyed Fish]

Andy, without a contribution and a need to permissively aggregate the plans, then I say you are fine to have BRF discrepancies because the plans are effectively separate. I know of no "special" need to aggregate plans for any sort of nondiscrimination if you don't have to for coverage.

[jquazza]

He would roll his balance over to an IRA but wants the added ERISA protection of having his money in a qualified plan.

Aside from the BRF issue, if you're intent is to keep the funds under the protection of ERISA, have you considered the fact that the plan for the other business might not be an ERISA plan (if it covers the partners only.)

[RCK]

This all seems like too much work to me. I'd just offer the self directed account to all participants, pass through the cost of that feature to anyone electing it, and hold my breath. Assuming that the recordkeeper is going to charge an extra $200 or so for this feature, I'm thinking that no body but the Doc takes "advantage" of it.

Or to be a little safer, I'd do some informal focus groups to see if anyone else would be interested.

RCK

[GBurns]

An issue I have not seen addressed is "his "other business" can establish a PS Plan, to which he would rollover his balance under the medicla practicie's Plan (via an in-service distribution)"

Is such an in-service distribution allowed? The Dr would still be employed by his medical practice.

Is a rollover to another plan allowed under these circumstances?

What gives the new PS any ERISA protection?

[mbozek]

Has the client researched whether state law protects IRAs from creditors claims? If his business venture has no common law employees then there is no protection under ERISA from creditor's claims against retirement benefits, only protection afforded under state law. Nothing else is relevant to the question asked.

[GBurns]

"Nothing else is relevant to the question asked."

2 of my 3 questions were taken from the third paragraph in the original post. That 3rd paragraph was the main question that the poster asked.

[AndyH]

The original poster asked what issues other than the need to make substantial and recurring contributions might be relevant to the situation. I think we've raised several of them:

1. There are expenses associated with the new plan.

2. There would be 410(b) issues with the esatablishment of a new plan if the businesses are considered controlled or affiliated.

3. If there are 410(b) issues then the ability to self direct in one plan but not the other could be a BRF issue under 401(a)(4).

4. The new plan may or may not provide ERISA protection and it may or may not be more than protection than an IRA would afford.

5. There would need to be a triggering event to allow the distribution and rollover.

It seems to me that we've provided a pretty good discussion of several relevant issues.

[mbozek]

The post was based upon the assumption that there was better creditor protection in a qual plan with ees than an IRA which is not true. In many states (NY, NJ) IRAs and qual plans without ees have the same creditor protection as an ERISA plan. If there is no equivalent creditor protection for the owners assets outside of the current plan then the owner cant have a self directed account in his current plan which does not allow SD for all participants.

[Blinky the 3-eyed Fish]

Mbozek, do you know the creditor protection status of IRA's in Arizona and California or a resource to research it?

[Belgarath]

You can try this - I can't vouch for the accuracy.

http://64.233.167.104/search?q=cache:DWK2h...rotection&hl=en

[GBurns]

The original post was based on "Doc wants to know if.. "

The assumptions about creditor protection are part of the poster's rationale and answers to the Doc's original question, but were neither the Doc's question nor the poster's question itself. The poster pointed out his conclusions so far and wondered if there were any other issues to be considered.

AndyH,

Yes, there has been a very good discussion of relevant issues by many. However, mbozek seems to think that there is only the ERISA protection issue as is evident in the wording of many of his posts.

So I guess a lot depends on whether or not creditor protection is the only issue and as he put is "Nothing else is relevant to the question asked".

But my take is that it is not and that is why you and others spent time addressing other issues that you all deemed relevant.