Take over plan

[Guest lindamichals]

We just took over a plan from a large insurance/investment company. The client was allowed to "fund" the profit sharing by March 15th, however, their former recordkeeper did not allocate the amounts into participants accounts for at least 3-4 months. The profit sharing contribution would sit in an un-allocated account not earning anything as well.

We have always provided our clients with a participant allocation prior to funding so we find this highly unusual and question if even legal. Am looking for a reference to dispute this and take it to the client. Thanks.

Linda Michals

[Bird]

As long as it's in the plan I think it's "ok" even though not very desirable, at least from the standpoint of not earning anything. I think I'd just use this knowledge as validation of the decision to move.

Now, if you're saying you can't or won't do this, but the client wants to continue the practice, I guess you could 1) convince them to just get an extension, or 2) have them open an account in the plan's name at their bank. (I can think of some reasons why that's not a great solution...)

[JanetM]

Does the plan sponsor (read fiduciary) truly believe that a non interest bearing account is a prudent investment for the plan?

[Guest lindamichals]

Does the plan sponsor (read fiduciary) truly believe that a non interest bearing account is a prudent investment for the plan?

Thus one of the many reasons they took their business to us and another investment company

[PLAN MAN]

What reason did the client provide for wanting to pre-fund the contribution before allocating it to participants' accounts? This is unusual, but not unheard of. I don't see a benefit here, the client cannot reclaim the contribution once it is deposited in the plan. Is this a maximum contribution? What happens if they calculated too high? I see a bigger problem if the contribution was invested before being allocated and there was a loss. How would you allocate the loss?

[Kimberly S]

We see it all the time in balance forward pooled accounts. The employer wants to prefund for cash flow purposes, but not allocate until the end of the year when they know who has met the allocation conditions.