Reasonable Dist fees for multiple payments

[AlbanyConsultant]

This PS-only plan has a trustee-directed pooled account and trustee-directed individual accounts that are updated as if they were truly daily (up until last week it was fully pooled trustee-directed). The participants are unaware that the accounts are split like this; they only get an annual statement that gives them their total balance as of the anniversary date.

Leaving aside how ridiculous this whole set-up is...

The plan's written document says that distributions are made as soon as adminstratively feasible after the anniversary date, but in practice they've paid out most of the participant's balance right after DOT (usually ~75%) so the participants didn't whine at them and then the rest after the annual valuation was complete. Now with this new set up, we're looking to make the document/SPD match what they do (and they're willing to change what they do a little to work with the document, how nice). They also want all associated distribution fees to be paid by the participant (since this is new, I know I've got to provide some kind of disclosure to the participants).

So here are my problems:

1. I believe I need to change the document to allow for certain assets to be valued daily (as opposed to all annual), and then I can make the distribution date to be as soon as feasible after the valuation date - this allows the individual account portion to be paid right after termination, which is sort of what they've been doing (the individual accounts are about 2/3 of the total account balance). If this is "material" enough to warrant an SMM, what would it say? The whole idea in the client's mind is that since the participant's don't control 'their' accounts, they shouldn't even know about them, but wouldn't anything in say in the SMM kind of tip them off that something was up?

2. I'm going to end up with two distributions for each person: one from the individual account in the year after they terminate, and one from the pooled account within a month after termination. That means two sets of distribution fees (since there will be separate 1099-R's). Is that unreasonable? Luckily, the plan has a YOS/last day requirement for a contribution and passes 410(b) easily, so a third distribution is extremely unlikely.

Thanks for your assistance.

[WDIK]

Depending on how the plan language was written, wouldn't it be possible to determine the amount due from the "pooled" account at the same time a determination is made from the "individual" account? This would avoid your concern regarding the double distributions.

Leaving aside how ridiculous this whole set-up is...

T r y i n g t o r e s i s t . . . b u t a m t o o w e a k . . . . .

What possible purpose is being accomplished here other than giving the fiduciary additional uneeded exposure to discrimination issues?

[AlbanyConsultant]

Depending on how the plan language was written, wouldn't it be possible to determine the amount due from the "pooled" account at the same time a determination is made from the "individual" account? This would avoid your concern regarding the double distributions.

Hmmm... I have enough difficulty getting information from this particular annuity company (oh, and that's a story in and of itself! ) an on annual basis. I don't relish the idea of trying to re-reconcile every time someone wants a payout. Plus, the employer certainly won't want to pay for the extra work!

T r y i n g t o r e s i s t . . . b u t a m t o o w e a k . . . . .

What possible purpose is being accomplished here other than giving the fiduciary additional uneeded exposure to discrimination issues?

The broker sold them on the fact that they needed this daily platform to provide another layer of review of the assets. To which I said to the broker, "Isn't that your job?" He was not amused. I counseled against it, but if I wanted to keep the case, I had to give in.

[WDIK]

Pick your poison.

1.

The plan's written document says that distributions are made as soon as adminstratively feasible after the anniversary date

Follow the plan document and have people irritated at the "delay" in receiving a distribution.

2.

I'm going to end up with two distributions for each person

and have people irritated at the additional cost and paperwork.

3.

I don't relish the idea of trying to re-reconcile every time someone wants a payout.

and have people irritated at the additional cost and work.

Good luck.

As an aside, are all of the 'individual" accounts invested identically?

[AlbanyConsultant]

As an aside, are all of the 'individual" accounts invested identically?

La la la la la, I can't hear you...

[WDIK]

As it appears you are aware, there are much bigger issues here than how many distributions must be made to a participant.

Your client and/or the broker need to follow some advice from Robbie Williams.

[FormsRstillmylife]

What about the pesky 401(a)(11) right of the participant to an annuity distribution funded by his full account flowing from that annuity funding vehicle and the document? I am making an assumption, but I am betting it is there. Never mind the right of the spouse to a J&50%S on the full amount if the participant elects an annuity for that after-plan-year distribution.

[Guest Sieve]

Probably no annuity issues since it's a PSP.

[AlbanyConsultant]

Probably no annuity issues since it's a PSP.

What he said.

I may as well tell the annuity story: the plan was invested in a managed account, and as I was reconciling one year I noticed that the previous year's deposit never hit. The broker was mystified, too. I called the client, and it turns out that he had overheard at a party that a retirement plan had to invest in annuities, so the next day he called an insurance company and deposited the contribution receivable into an annuity. If that's not a prudent Trustee, I don't know what is.

WDIK: the broker claims that he is employing one investment strategy, and the platform is splitting that pro rata to all the participants. So the answer to your initial question seems to be "yes". I know, now you can sleep easy.