Aggregating 401(k) balance with non-401(k) balance to get lower management fees

[Guest mbg]

Does anyone know of any authority that would allow a 401(k) plan participant to aggregate the value of his/her 401(k) account with investments outside the plan held at the same institution to meet a minimum account balance requirement for receiving lower management fees that wouldn't create a prohibited transaction under ERISA 406(a)(1)(D)? I know that PTE 97-11 allows this for IRAs and Keogh Plans, but I can't find anything allowing it for other qualified accounts.

[Bird]

I'm not sure it's a PT issue as much as it is "what will the fund company allow?"

In my experience, they are pretty restrictive - the retirement plan account will only count towards aggregation if the investor in the other account(s) is the trustee, and there are no other participants. (I'm talking about sales charge breakpoints - not sure if we're on the same page.)

[Guest mbg]

My concern is that this could be viewed as a PT under 406(a)(1)(D) because the participant, as a party in interest under 3(14)(H), is using the plan assets for his/her own benefit to get this reduced rate for assets both inside and outside the plan.

[QDROphile]

I am ignorant about any authority, but more facts may help. Is the plan with an institution and the individual is trying to decide to move other money to the institution? How will the "savings" be allocated? Seems pretty difficult to allocate it to a particulatr account under the plan. Also consider that the ERISA 404© regulations may protect everyone but the individual participant, so you may be able to let the participant take the risk. However, the plan needs to consider reporting requirements and whether or not it will need to report a prohibited transaction and the portential consequences to the plan of reporting, such as increased risk of audit.

[Guest mbg]

The participants in question have self-directed accounts, so it shouldn't be too difficult to figure out the savings with regard to their assets within the plan. Those participants would receive a lower rate on trades and investment advice from the trustee as an incentive to keep large balances, both inside and outside the plan, with the trustee.

[Locust]

A difference between your situation and the IRA situation is that in your situation the assets of the plan are held by a trustee for many beneficiaries (as opposed to the IRA where the custodian holds the account for the IRA owner). What are the duties of the plan trustee to the other participants? Will they all benefit from this arrangement; will there be an extra burden on the trustee or recordkeeper because of the arrangement; will there be restrictions on changing the arrangement if the trustee decides it needs to; will all participants get the same treatment? Shouldn't the trustee be negotiating with the investment institution on behalf of all participants, not just the ones with self-directed accounts? [if this is a single participant plan, maybe some of these are not concerns?]

Also, it sounds like the trustee also has an interest in managing the assets outside plan - it has a conflict of interest. Is this different from the situation in which a bank says to a company that the bank will look more favorably on the bank's lines of credit if the company chooses the bank as trustee of the company's plan? It doesn't seem like it. A way to look at it is that the bank is trying to influence plan decisions by giving preferential treatment to the participants with the large accounts (probably the decisionmakers).

It just seems like a situation rife with conflicts that would be subject to secondguessing by other participants and possibly the DOL.

[namealreadyinuse]

I agree with Locust. The (k) is not in parts name. It would be a PT or maybe even an assignment or pledge. No can do.

[Bird]

The new info, while still a little sketchy, leads me to agree with the others that this is likely a PT.

[E as in ERISA]

PTE 1997-11 allows aggregation of IRAs and Keoghs for purposes of getting reduced fees. Absent a specific exemption for the 401k I would agree that it's probably a PT. There were a couple of amendments. Quick scan says that they don't extend to 401k. http://www.dol.gov/ebsa/regs/classexemptions/main.html

[jpod]

It may not be a pt if only the 401k account benefits from the lower fees resulting from aggregation. In other words, your non-401k account would pay the same level of fees it would pay without any aggregation, but all of the savings is realized by the 401k account. You might wish to check with your investment advisor to see if that can be done.