Guest Navigator Posted January 28, 2008 Posted January 28, 2008 We have a client who has a defined benefit plan and is looking to add a 401(k) profit sharing plan. As the assets for the 401(k) are separately accounted for and investing is segregated, they are interested in placing the profit sharing and defined benefit plan assets in the same 401(a) trust. Can this be done? I don't see a problem legally, yet . . . Appreciate your thoughts.
SoCalActuary Posted January 28, 2008 Posted January 28, 2008 Extremely common in small plans. Not used in large plans. The major issue is that the Trustees will have two different investment objectives for 401k assets from DB assets. But if each is properly accounted, and both trusts are treated equitably, then it should be fine.
Andy the Actuary Posted January 28, 2008 Posted January 28, 2008 Will need "Mast Trust" document and "Master Trust" will need to file 5500. The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
Mike Preston Posted January 28, 2008 Posted January 28, 2008 Andy, that isn't the way it is done out here on the Left Coast. It is merely a combined trust, not a master trust.
Effen Posted January 28, 2008 Posted January 28, 2008 SoCal - "Extremely common in small plans." ??? Maybe in SoCal, but I'be been doing large and small plans for 25 years and have never seen it in any size plan. We just must be behind the times over here in the East. What are the advantages of doing this? What are the disadvantages? The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.
SoCalActuary Posted January 28, 2008 Posted January 28, 2008 Convenience and ability to pool assets are both reasons used. In addition, consider the convenience of the ability to take distributions in kind and roll to the successor plan. Finally, we have DB plans where a separate account is maintained that came from a prior DC plan or IRA account that was closed. These were easy to handle with a simple participant election and re-allocation of assets.
Guest Navigator Posted January 28, 2008 Posted January 28, 2008 Curious SoCalActuary, you confirmed what I believed. For the benefit of the rest of the Board, did the plan receive a 401(a) determination letter for the trust?
John Feldt ERPA CPC QPA Posted January 28, 2008 Posted January 28, 2008 SoCal - "Extremely common in small plans." ???Maybe in SoCal, but I'be been doing large and small plans for 25 years and have never seen it in any size plan. We just must be behind the times over here in the East. What are the advantages of doing this? What are the disadvantages? I agree, but for me it's regarding the Midwest, and only 19 years. In the past few hundred small plan combos, I've only seen that a couple times.
AndyH Posted January 28, 2008 Posted January 28, 2008 I agree that it is a rarity up here in err, Patriots Nation. I would always advise against it.
John Feldt ERPA CPC QPA Posted January 29, 2008 Posted January 29, 2008 Do you offer the 401(k) participants investment direction?
AndyH Posted January 29, 2008 Posted January 29, 2008 Please share why you advise against it. Inexact; disorderly;less than fully defined. Hassle. Show me a document that states in detail how comingled assets are to allocate activity such as contributions, distributions, etc. and perhaps my issues would be trivial.
QDROphile Posted January 29, 2008 Posted January 29, 2008 No argument about the need for well drafted documents.
Mike Preston Posted January 29, 2008 Posted January 29, 2008 I think you are overthinking it. Show me a trust document that specifies how earnings are to be calculated on rollovers in a straight PS plan, when there are multiple rollovers, some related, some not. There are tens of thousands of real determination letters (for periods before GUST) and hundreds if not thousands since then (heck, maybe even tens of thousands). Maybe they are all on the left coast?
AndyH Posted January 29, 2008 Posted January 29, 2008 Don't you find rollover accounts in DB plans to be a hassle? I would advocate against that as well.
Mike Preston Posted January 29, 2008 Posted January 29, 2008 That isn't the point here. People are implying that there may be a fundamental flaw in these arrangements. If so, there are literally 100's of thousands of plan years that should have been impacted. Think back to the time when we did balance forward accounting on most of our plans. We didn't blink to allow rollovers and transfers, both in and out. The trust rarely specified how separate pools were to be valued and plans took a practical approach that included ensuring that any methodology adopted by the Trustees was consistently applied. There is a natural tug-of-war between the requirement that a plan be administered in accordance with its terms and a Plan Administrator's ability to resolve ambiguities found in documentation. There is nothing that says once an ambiguity is found that it must be resolved via a plan amendment to remove the ambiguity. It is sufficient for the Plan Sponsor to say that there is a specific meaning associated with the wording found. To the extent there are any of these sorts of things found in a comingled trust, they are resolved in that manner. The IRS has never had a problem with it.
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