What is a master trust?

[Guest Boilerburm1]

I have exhausted my search of normal research channels, and have been frustrated by the lack of information on what constitutes a master trust and how one is formed/operated. Hoping someone here can help me.

I have an employer who wants to set up a separate plan at each of his two sites. He works with a couple of brokers, and likes to do recordkeeping himself. He wants to have a "balance forward" arrangement where all participants in each plan share in trust activity, and the recordkeeping is done once a year. I believe this would constitute a master trust because it is 2 different plans maintained by a single employer, with assets not segregated between the two plans.

What do I need to consider in this arrangement? I assume a separate trust agreement needs to be written for the trust, but does that trust need to file anything? 5500s?

Any insight would be appreciated.

[E as in ERISA]

You'll find "master trust" in the 5500 instructions. Yes, that's single trust for multiple plans of one employer. And I think that an extra 5500 for the trust is still required. http://www.dol.gov/ebsa/pdf/2005-5500inst.pdf You also need to look at discussion of 81-100 group trusts for the rules on what provisions the trust will be required to include. http://www.taxlinks.com/rulings/1981/revrul81-100.htm

[Guest Boilerburm1]

Thanks for the reply. The 5500 instructions discuss a Master Trust as a trust for which a regulated financial institution serves as trustee or custodian, and states that a brokerage firm does not qualify as a regulated financial institution for these purposes. My sponsor uses brokerage accounts, and several other investment vehicles, so I don't see this arrangement as meeting the MTIA definition.

So where do I go from there???

[JAY21]

I don't think you need a master trust in this situation. An employer can set up 2 plans if they wish and each plan/trust will cover the assigned participants to that plan (e.g., specify by job site) and only the participants in that plan/trust share in the earnings from that plan/trust. Alternatively, if you want a shared trust approach, just have one plan but with different benefit formulas (or other features) specifying the eligible participants for each formula and feature (e.g., or per job site). It probably won't be a safe-harbor plan, and it's a little more customized from a plan document standpoint, but if the general test is used to pass discrimination testing and it passes then it's fine. However, I doubt the employer would be able to do his own discrimination testing unless he has a background in plan administration. I guess that's the downside to this approach. It might help if we knew what different features he/she is looking for between the two job sites.

[Guest Boilerburm1]

It might help if we knew what different features he/she is looking for between the two job sites.

There are 80 ees at each site. The main motivation is to avoid the audit. Features will be mostly identical, but he wants to keep the assets pooled, and not segregated between the sites. He doesn't do the discrimination testing, but he does want to do the balance forward participant accounting.

[JAY21]

This client really wants the best of all worlds doesn't he. Given the client's motives I have to backtrack on my previous comment of their being other approaches, as I'm now agreeing with you in that I don't see how to accomplish the goals of (a) avoiding audit requirements AND (b) having assets pooled for both plans. It's definitely trying to have your cake and ice cream too. Perhaps the Master Trust approach would work in this regard but I'm not seeing anything else.

[jevd]

My eyes were all on Kay

When Edith came into view

And I found to my dismay

You can't have your Kay and Edith too.

Sorry.

Couldn't Resist.