Pension Account

[Gary]

The following question is so elementary, that it can get overlooked.

Say a client establishes a pension plan.

When setting up the pension account, clients run into difficulty, and financial institutions don't know how to handle the question "can you open a pension account for me?"

They respond with all sorts of forms (irrelevant or inapplicable) or that they can't do it, etc. Many banks, etc. think that they are being asked if they can provide the plan documents, administrative tools, etc. and thus get confused or say they don't do it.

My belief (and what I did for myself) is that all you need to do is establish an account called say The ABC Company, Inc. DBPP, give them the trust ID #, and Corp EIN if necessary and deposit and invest money.

When I told this to a very newvous client, he kept asking is that it are you a hundred %, and so on.

So my question is "Is this absolutely all that is needed to communicate to a client or should anything else be addressed?"

Thanks.

[JAY21]

I like the simplicity of this approach, and I realize the Tax ID# given to the bank is assigned to a tax deferred entity (i.e., the trust) but does the bank know it's tax-deferred under this set-up approach ? so as not to issue 1099s showing taxable income ? Even though it later could be proved to be a tax-deferred account (if IRS inquired) it seems like you'd want to avoid this hassle.

[Gary]

Typically I ignore the 1099 statements as irrelevant, but do you mean or suggest that sa an additional step to advise the bank that it is a deferred compensation (i.e. pension account) so they handle it most accurately?

Thanks.

[himt4]

I definitely share your frustration. Let me share my story. Last year a client was terminating his 20 participant plan. The place he had the assets didnt have an easy way to cut checks, so as I often do, I suggest to the client that he go to his bank and open a checking account in the name of the plan and move the assets there for easy payouts. The client went to his bank, and the branch manager gave him the typical hard time. So to help the client out, I called the bank and tried to work my way up the ladder to find a corporate bigwig with some knowledge and authority about pension plans. When I finally got a hold of one, he told me to send him an email. Here is the letter I sent and the reponse (I changed the name of the bank to "metrobank" and the contact to "mr. big" to protect the innocent.)

my email:

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Subject: Metrobank checking accounts for pension plans

2/10/04

Dear Mr. Big:

As discussed, I am a pension administrator for a pension consulting firm that deals primarily with small company pension plans. These small plans have pension assets that will invest the pension assets however the trustee (usually the employer) chooses (i.e in stocks, mutual funds, bank accounts, etc).

Eventually, the Pension Plan will have the need to make an occasional payment. Often, we will recommend to the client that they go to their local bank and open up a checking account in the name of Plan and keep a small amount of the Plan's assets in this checking account so that they can make the occasional payment. These clients then go to the bank that they have their business accounts with and open up the checking accounts in the name of the Plan.

Here's the problem: It seems that when these clients go to metrobank, often the branch manager will tell them that "its illegal for a Pension Plan to have a checking account" or "a checking account is not a qualified account". As a pension administrator it is my understanding that a checking account opened up in the name of a Pension Plan is qualified. Other times, the “Metrobank” branch manager will open a checking account for the client without a problem.

What I would like is a contact at “metrobank” who understands about pension Plans. So that when a client comes to me and says "I went to 'metrobank’ and they gave me a hard time about opening up an account in the name of the Plan", that I could ask this contact to call my client's 'metrobank’ branch and tell them how to do it.

I thank you in advance for your anticipated cooperation.

- - - - -

the reponse I recieved:

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The branch manager's comments about ownership of the account is correct. The account needs to be in the name of the trustee for the plan i.e. "ABC as Trustee for". Just having an account in the name of the plan is not okay and does not determine if it is qualified. The nature of the investment is the critical issue. You really need to address this with the manager on a case by case basis. As discussed, my business services large pensions and we would not be able to service you in the manner that either you or I would like to be serviced. We did explore various options within the bank, but this is the kind of service that should be handled by the plan administrator and trustee. My sincere apologies that we are unable to assist your client in this regard.

Mr. Big at Metrobank

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[JAY21]

Right. I realize that 1099s are just issuers best guess on taxation implications and they can be ignored if not accurate, but personally if I could set it up so the 1099s are consistent with reality (i.e., tax deferred) that would be my preference. That being said I like your approach as I've fought the same battles with banks to end up with what appears to nothing more than the exact minimum you are proposing (except possibly the 1099 issue) but having been bounced between 3-4 individuals at the bank to get it done. I might be an easy convert to this approach even if the 1099s don't get issued with accurate info.

[No Name]

We open "Company Retirement Accounts" with a company I'll just refer to as Chuck. There are checkboxes to indicate what type of Plan and Trustee information. With suffient assets ($5k, I believe), you can request a checking feature.

I've opened these with the EIN with no problem (20+ years). Now that its easy to get a TIN, I would probably lean that way. There's a Form (W-9, W-8?) to delare exemption from tax reporting.

I agree, you have to watch out for institutions that want you to sign a new prototype every time you open a new account. Ever have a client with six Plans (001-006) because of some rookie?

[J2D2]

Maybe you're way beyond this issue, but have you talked to the trust department of the bank? I can see where the platform folks at the branch might be confused about your request. Just a thought.

[Gary]

Going through the trust department is probably a good idea.

FOr eg. with Schwab it is best to go through the retirement department otherwise you get the frontline financial advisors, who are often clueless.

[ljr]

As a bank trustee we receive hundreds of 1099's every year for accounts that are not taxable. We just file them. For example, if a retirement plan account holds CD's as assets, the issuing bank will provide us with a 1099. When we make taxable distributions out of the plan, we report it on Form 1099-R. I'm at a loss to explain why your local bank is having a problem opening an account in the name of a trust. They will need an EIN and some request a copy of the plan and trust documents.