NQDC- Brokerage Window

[Guest caseyb]

Good morning, is anyone familiar with a NQDC arrangement that offers a brokerage window for its participants to purchase securities outside of the plan's fund lineup? I can see where it would be a bad idea - 'unfunded' status, constructive receipt, etc but we have a participant asking if this can be done. Thank you for your input.

[jpod]

Probably a very bad idea administratively, but if done correctly it should not present any tax or other ERISA Title I problems.

[QDROphile]

I second jpod.

[Ron Snyder]

Ignoring the administrative issue, there is the issue of control. Remember that to avoid being vested in their benefits (and therefore taxed immediately) participants cannot exercise control over those investments. Offering a brokerage window would seem to beg IRS to call the account balance taxable (unless only the trustee or investment manager could use the window, and then it wouldn't work the way anticipated).

[QDROphile]

I though it was settled that the investment of employer assets at the direction of the participant was not a problem if the employer (or trustee of the grantor trust) was not legally bound to follow the directions.

[jpod]

I agree with QDRO that it is settled in practice, even though there may not be any authoritative IRS guidance blessing the practice. On the other hand, VEBA, if a brokerage window triggers the economic benefit doctrine (which is the theory by which the vested benefits would be taxed), why wouldn't a platform of mutual funds trigger the economic benefit doctrine? The only difference is that the brokerage window presents a better test case for the IRS, but that presupposes that the IRS is waiting for a test case, and there is no evidence of that.

Notwithstanding the academic legal issues, I stand by my first thought, which is that it is an administrative headache and a very bad idea.

[Guest Eric.]

I'm with jpod, though I suppose if there is only one or two participants in the plan, it could be a different (degree of administrative headache) story than if there are 100 in the Plan, but ...