Master Trust

[jpod]

Single Employer has two 401(k) plans (for good reasons). Wants to set up a master trust (for a good reason), and understands potential recordkeeping complications. From a qualification perspective, does each plan need to have its own trust that then "funnels" everything into a master trust (so that there are three trusts), or can there simply be a single trust for both plans?

[jpod]

any thoughts on this?

[QDROphile]

It is not necessary to have separate trusts under the master trust.

[rcline46]

Review the definition of 'plan' very carefully. One trust might cause the 2 plans to be treated as one plan.

[jpod]

One trust won't cause you to have one plan rather than two as long as the 414(l) criteria are respected. What issues are you talking about?

[rcline46]

The first issue that comes to mind - if the assets of one plan can be used to pay benefits in another plan then the IRS may construe that there is only one plan. This construct way predates 401(k) individual account plans, but it is still listed under the definition of 'plan'.

I remember that there are other items and it may have been TRA 86 or even later that the definition of 'plan' was re-emphasized in the law.

[austin3515]

I thought the only implication of this was aggregation of the plans for an audit requirement?

Also, You don't need a Master Trust. The two plans can be commingled in a single account. See the instructions for the Schedule H where it talks about the plans reporting their pro rata share of any balances held in an account in which more than one plan has an interest. My understandng is that although this is a bit of a dinosaur today, it was quite common with paired MP/PSP.

So as an example, we have a few plans where the money is all included in a single recordkeeping contract. We track the separate plans by division. And we watch out for the audit requirement.