Master Trust or Not?

[Guest Walter Patricio]

If you have a controled group of employers who each sponsor equal but separate 401(k) plans, but all the plans assets are invested under one annuity contract which provide for directed investments by the participants, is this considered a Master Trust. The financial institutions does not segregate each plans assets nor do they provide individual plan certification. The certify the contract as a whole. The trustees of each plan are employees of the employer appointed by the employer.

[IRC401]

You need to have a trust document in order to have a master trust. Did anyone create a trust?

How is the annuity policy titled?

I'd want to see the documents before determining what you have>

[Everett Moreland]

A master trust must qualify as a group trust under Revenue Ruling 81-100. From your description it appears that the group annuity contract does not qualify as a group trust. Although I suppose you could have a group annuity contract that is comparable to a group trust, there appears to be no need to qualify the group annuity contract you describe as a group trust. Because all the participating employers are members of a controlled group, they are considered a single employer for purposes of the exclusive benefit requirement under IRC Section 401(a). See IRC Section 414(B).

[MoJo]

I'm not sure I agree with the previous message. Despite the fact that the plans are sponsored by a "single" employer through the controlled group, the plans are distinct, and hence would require that the assets of each plan be used solely for purposes of that plans liabilities. Commingling the assets without the benefit of a master trust would be a problem. However, if this is a fully insured investment, I would question whether a trust were required in the first place....

[Everett Moreland]

I think the following 1.410(B)-7(B) deals with the concern stated in the prior message:

"Each single plan within the

meaning of section 414(l) is a separate plan for purposes of section

410(B). See Section 1.414(l)-1(B). For example, if only a portion of the

assets under a defined benefit plan is available, on an ongoing basis, to

provide the benefits of certain employees, and the remaining assets are

available only in certain limited cases to provide such benefits (but are

available in all cases for the benefit of other employees), there are two

separate plans. Similarly, the defined contribution portion of a plan

described in section 414(k) is a separate plan from the defined benefit

portion of that same plan. A single plan under section 414(l) is a single

plan for purposes of section 410(B), even though the plan comprises

separate written documents and separate trusts, each of which receives a

separate determination letter from the Internal Revenue Service. A defined

contribution plan does not comprise separate plans merely because it

includes more than one trust, or merely because it provides for separate

accounts and permits employees to direct the investment of the amounts

allocated to their accounts. Further, a plan does not comprise separate

plans merely because assets are separately invested in individual

insurance or annuity contracts for employees."

[MoJo]

Not quite. What the IRS says about "plans" has nothing to do with what the DOL says about "trusts." Commingling of trust assets is per se a violation of basic trust law, unless there is a specific mechanism that allows it. A master trust is one...