SDBA In A Non-Qual Plan

[Guest cs006b]

Does anyone know of any potential issues with having a self-directed brokerage account in a non-qual plan? I have heard conflicting opinions on this topic. Thanks

[Guest mjb]

There is nothing that prohibits the use of a SDBA provided tht the employer is the owner of the account and the funds are subject to the claims of the employer's creditors.

[Guest Harry O]

The IRS used to make noises that if an employee has too much effective control over his deferred comp account, that the employee could be taxed on it currently (a dominion and control theory). I think the IRS has pretty much backed off this theory. I agree with mjb that you should be ok as long as you make it clear that these are notional investments, the employee is not required to invest any underlying assets as directed by the employee, and any assets are subject to the claims of the employer's creditors.

[Mark Whitelaw]

I never found a CFO that was willing to turn over the management of balance sheet assets to the individual plan participants. It was one thing if the executive wanted to play with their phantom account balance (liability), quite another to play with the company's informal funding asset itself. The executive is looking at how they manage their account between now and retirement. The CFO is looking at the liabilities of multiple executives over the next 20 or 30 years. The executive may want to take a flier or day trade their account balance. I doubt the CFO will be favorably looked upon for following suit. Very different financial management perspectives. Or as one example given to me by a CFO when discussing this issue "Just because I can put my finger in a light socket doesn't make it a good idea."