Need Sample of Written Policy for Interim Valuations

[Susan S.]

One of our clients has a profit sharing plan with pooled investments, valued annually. Some of the participants have very large account balances. The trustees want to create a policy that distributions over a certain dollar amount will be subject to an interim valuation. Does anyone have sample wording?

[david rigby]

Would this be (or have the potential to be) discriminatory? If so, perhpas you can amend the plan to include quarterly valuations for all participants.

Or, make it daily.

[pmacduff]

Don't know if this will help but we have a client with a PSP that pays out 70% of the prior balance upon retirement (age 62 in this Plan). The remainder of the account (30%) is paid out following the next following PYE and adjusted for gains or losses. It seems to work well because the older participants are the ones with the large balances.

I realize it wouldn't help if you have participants that are much younger but still have large balances...but that not the norm in our small plan market!!

[Bird]

For the most part, we attempt to ID pending large distributions and raise cash near the end of the year so that those accounts are effectively segregated. Of course, that's not always possible, and we do declare special val dates on occasion. For the most part, I think you can rely on plan language allowing you to do it, such as ours (Ft. William):

"Valuation Date" has the meaning specified in the Adoption Agreement. Notwithstanding anything in the Adoption Agreement to the contrary and in the event that a Participant is to receive a distribution from the Plan, the Plan Administrator may in its sole discretion declare a special Valuation Date for that portion of the Plan that is not daily-valued in extraordinary situations to protect the interests of Participants in the Plan or the Participant receiving the distribution. Such extraordinary circumstances include a significant change in economic conditions or market value of the Trust Fund.

As far as an official policy...well, I don't know that you need one and don't know that you want one, forcing you to act when you might have good reason not to. But...I did have a plan that wanted to commit such a policy to writing, and did so, in 2002, but the file is corrupt and I can't open the document; sorry, but I really did try! I think it was something along the lines of "If asset values change by more than x% (10?) and that causes a participant's account to change by more than $x, then we'll declare a special val." But that almost forces you to do a special val just to determine if one is needed! Long story short, informal is best, IMO.

fyi ASPPA asap 8-37, reprinted as asap 11-27, touches on this. Send me a PM if you're not an ASPPA member.

BTW, I don't think it is discriminatory; more likely to be discriminatory if you didn't do one, in certain circumstances.

[ESOP Guy]

Like pmacduff the few times this issue has come up we recommended the plan be amended to allow a partial estimated distribution of some % of the prior val balance with a true up after one valuation. You can often times get the bulk of the money out which make the person happy, but people can't avoid taking their fair share of loss (or gain-- but no one seems to worry as much about gains).

Like stated by others I would check your document. Most give you the ability to do interim valuation if the trustee deems it needed.