Benefits, rights and features

[Randy Watson]

Are non-plan imposed limitations taken into account for purposes of 401(a)(4)? For example, an investment option in a plan is available to all, but only permits liquidation if the investment is worth X dollars. This limitation is imposed by the fund, not by plan design. Although not discriminatory on its face, it could be perceived as having discriminatory effect since it's likely that those eligible for liquidation will be HCEs only. Any thoughts?

[Jim Chad]

I think you have a "benefit, right or feature" you need to test. It sounds like the investment with a $50,000 minimum we have heard about over the years. It is effectively available only to HCE's.

[Guest Pensions in Paradise]

Let me get this straight. Are you saying the fund only permits a participant to liquidate if the participant's holdings are above a certain level?

[Randy Watson]

That is correct.

[austin3515]

Sounds like your bigger problem is a fiduciary one. How could that be a prudent investment?

[Randy Watson]

Sounds like your bigger problem is a fiduciary one. How could that be a prudent investment?

Although a valid point, I'm not concerned about that issue. Liquidation is also permitted after a fixed number of years, regardless of the amount of the investment.

[rcline46]

Who is record keeping? If true individual accounts that is one thing, if omnibus accounts then you may be able to do partial liquidation for a participant because the whole account is large enough.

As stated previously, there is a severe fiduciary problem here, like the investment is not proper for a 401(k) plan to start with. I think you should notify the fiduciaries of the problem. And if you are the broker on the account, you should lose your ticket over this kind of sale.

[Guest Pensions in Paradise]

Couple of things. First, IMO this is a BRF suject to testing. Second, have the trustees seriously reviewed this investment option to see if it is prudent for the plan. Third, would the fund's liquidation restrictions possibly conflict with the plan provisions. For example, how would the plan deal with the situation if a participant terminates and is entitled to an immediate distribution but they cannot liquidate their money. Is the plan going to distribute the asset in-kind?

[Randy Watson]

This is all very helpful. Thank you.