Single brokerage account for MPPP and 401(k) plan?

[Jon Chambers]

I'm working with a company that offers both a money purchase pension plan and a 401(k)plan. Currently, they self-administer and self-trustee the plans. Both plans offer individual brokerage accounts. Employees are permitted to open a single brokerage account to hold contributions from both plans. For reporting purposes, the company performs a pro-rata allocation of assets/transactions, etc. to determine activity in each plan.

Although I can't cite any legal authority, it seems that this approach has some issues:

1) Do you have a master trust if assets from two plans are commingled in a single brokerage account?

2) Are you accurately tracking benefit accruals (given that the MPPP and 401(k) plans have different distribution options) when you do a simple pro rata allocation to determine gains, etc. in each plan (presumably, the 401(k) plan receives contributions at a different frequency than the MPPP)?

Has anyone else experienced this type of fact pattern? Is there any legal authority supporting (or prohibiting) a single brokerage account for multiple DC plans? Opinions?

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Jon C. Chambers

Principal

Schultz Collins Lawson Chambers, Inc.

(415) 291-3004

[Ervin Barham]

I have worked with these on many plans. A couple of points:

1. The plan document needs to authorize the commingling. There are prototypes that allow the Employer to combine plans. I am not aware of the creation of a master trust.

2. The IRS instructions to the 5500 allow that if plans are commingled, they require a breakout for each plan for reporting purposes.

3. Your concern about the proper allocation of assets is valid where you have a 401(k) plan. The manual breakdown should reflect some type of weighting for the 401(k) contributions. Again, the plan document should give some type of guidance. I have found it easier with a 401(k) plan to recommend to the sponsor to have separate accounts.

[Spencer]

Our office administers a commingled MPP and 401k plan with individual brokerage accounts as well as six pooled funds.

As Ervin says, the document must state funds will be commingled. We have a established a Master Trust with investment company and it is clearly labeled so on each fund and all brokerage accounts.

We prepare monthly statements on a cash basis and contributions deposited during the month are half-weighed. We prepare an annual "true up" report upon final determination of net earnings (it's an LLC) and "true up" contributions do not received earnings.

Our software allows us to set up more than one source for employer contributions so we have set up MPP as a separate source. This makes it easy (well, easier) to break out for 5500 reporting purposes. This plan requires an accountant's opinion and we've never had any problems.