Valuation for a balance forward plan

[Guest EPS2]

Calendar Year Corbel standardized prototype Profit Sharing Plan that uses annual valuation on 12/31:

sponsor wants to amend plan to add a safe harbor 401(k) provision effective June 1, 2008

Sponsor also wants to move the rank and file participant's current Profit Sharing account balances from pooled account, which consists of four investment companies, to participant directed accounts using Ohio National's product. He wants to keep his, and his wife's account blances in one of the exhisting investment accounts.

My question is...if the plan document says we use a valuation date of 12/31, and the assets don't get transferred to the directed accounts until sometime in May...how is it done if the asset value is either more or less than it was on 12/31?

I just did the trust accounting from January 2008 though March 2008, and there was a $17,000 loss. How the heck do we allocate 12/31 balances into a new investment for the participants when there isn't enough money in the trust to do so?

Can this even be done this way? I mean, wouldn't it be discriminatory to let the owner employee keep his money in a brokerage account while everyone else has to move their money out? Wouldn't we have to offer a brokerage account to the participants too?

Any guidance on this would be so appreciated.

Thank you.

[Jim Chad]

2 issues here

Yes you have to test benefits, rights and features. If only the owner and spouse have an investment available to them, it will not pass.

As far as valuation and transfer, you might want to look to see if the document allows the trustee to have an extra valuation done at any time. I would be very surprised if this is not there.

[Bird]

I agree with Jim Chad.

Further thoughts on the BRF issue - you can, in theory, offer participants either the pooled option or the self-directed option, but the practical matter of getting there is more than a little tricky. One has to ask "what's the point" and then ask if the broker who sold this has a clue as to the ramifications.

And yes, if you follow through with this, you almost certainly have to do an interim valuation. The plan should allow for it.

[J Simmons]

Why does the owner want to keep his and his spouse's benefits in one of the existing accounts? Is it because there will be surrender charges or back loads that he wants to avoid for himself and his spouse, but as to which his action will subject the rank-and-file employees' benefits (or front loads with the Ohio National products)?

If so, the BRF concern will be a greater hurdle than it might otherwise be.

[masteff]

The plan should allow for it.

And if it doesn't allow if it, then the plan will need some amendments so that it does.

[PLAN MAN]

The best approach would be to declare a transfer date and do a full plan valuation as of the transfer date. Then move the money as soon as possible after that is completed. Any additional gain/loss would be allocated proportionately based on account balances as of the valuation date.

If you can't perform the valuation as of the transfer date, I'd suggest calculating each participants share of the plan value on 12/31/2007, add in any contributions, subtract any distributions and allocate the funds based on the each participant's percentage of the plan value.