Prototype solo 401(k) switching plan document provider ("restatement")

[Guest hk73]

A prototype 401(k) exists with a mutual fund company as plan document provider. Are there any potential compliance issues when switching plan documents (basically a restatement of the solo 401(k) plan effectuated by adopting the new provider's prototype plan)?

I understand the new plan (or technically, restated same old plan) is effective the first of the year retraoactively, and contributions can be made under the new plan documents up to the limits (minus any contributions already made to the old plan) of 17,500 deferral and 33,500 employer contribution (for 2012).

Old provider is a mutual fund company. The new plan documents allow for self-directed investment of any kind legally allowable. Existing funds would be transfered to a new brokerage account under the 401(k) plan's name.

Any potential pitfalls or formalities to consider?

[QDROphile]

The plan may have a blackout period in connection with the change of investment provider; appropriate advance notice will be required.

The restatement need not be effective as of the pror January 1 (or other first day of plan year). Care shoud be taken either way to be sure the plan operates in accordance with its terms.

Are you serious about the scope of allowable investments? If the plan is open to so much trouble, one might think it would indulge in a custom document.

[Guest hk73]

The plan may have a blackout period in connection with the change of investment provider; appropriate advance notice will be required.

The restatement need not be effective as of the pror January 1 (or other first day of plan year). Care shoud be taken either way to be sure the plan operates in accordance with its terms.

Are you serious about the scope of allowable investments? If the plan is open to so much trouble, one might think it would indulge in a custom document.

Old plan is Fidelity prototype solo 401(k), which is decent but has no Roth option. New plan documents are provided by mysolo401k.net , have IRS approval letter, and have a Roth option (needed), and allow for investments like real estate, gold, etc. (not needed in this case), but goal in this case is to have the investments in an IB (Interactive Brokers) brokerage account with ca. $1 commissions and better and efficient global diversification via direct market access to Hong Kong, Singapore, and of course all US markets. Only domestic and international common stocks will be bought with the funds.

I assume by "blackout period" you mean a few days where no funding is possible? It's a solo plan, so only owner-participant - I assume nobody really has to be notified, right?

I wanted to check if there are any regulatory pitfalls, e.g. regarding the moving of assets from Fidelity (under the old plan docs) to the new brokerage account (under the new plan docs), which will be effectuated within ca. 2 weeks of adoption (potentially a few days into the new year depending on how long the ACAT transfer takes). Does anybody see any issues with timing? Can the funds in the old account be presumed to be assets of the restated plan from the date of the adoption of the restatement, even in the short timeframe until the physical transfer to the new account occurs? The adoption of the restatement and the Roth deferral contribution will surely be done before year-end. The employer contributions for the year were partically done before the restatement.

Maybe I'm overthinking this.

thanks,

[Bird]

Generally speaking, what you describe is ok. Personally, I'd rather not be using investment-company sponsored documents that force you to adopt a new document just because you want to change investments, and the ready availability of such "free" documents just gets people into trouble.

[BG5150]

I think you are over-thinking this a bit.

You don't have a new plan, just a different plan document.

I would certainly have the new plan document effective at the same time or before the money is transferred from Fidelity (because of the brokerage account).

Unless the basis of the Employer contribution changes, I doubt it would matter under which document it was made.

I would produce a blackout notice and have it in the file. This way, the owner isn't going to try to sue anybody if he comes across that once-in-a-lifetime investment opportunity during the blackout that he wasn't allowed to get into.

Is there going to be more than one brokerage account for each source? Or are you going to value the money sources once a year or so?

[Lou S.]

I think you are over-thinking this a bit.

You don't have a new plan, just a different plan document.

I would certainly have the new plan document effective at the same time or before the money is transferred from Fidelity (because of the brokerage account).

Unless the basis of the Employer contribution changes, I doubt it would matter under which document it was made.

I would produce a blackout notice and have it in the file. This way, the owner isn't going to try to sue anybody if he comes across that once-in-a-lifetime investment opportunity during the blackout that he wasn't allowed to get into.

Is there going to be more than one brokerage account for each source? Or are you going to value the money sources once a year or so?

Totally agree with this. I'd probably use a restatement date of now with a plan effective date back to the original effective date of the plan.

Even though it is a 1 man plan, he just needs to make sure there are no prohibited cutbacks going from one doc to the other. Doesn't sound like an issue since they seem to beswitching to get more options, namely ROTH ability.

[Guest hk73]

I think you are over-thinking this a bit.

You don't have a new plan, just a different plan document.

I would certainly have the new plan document effective at the same time or before the money is transferred from Fidelity (because of the brokerage account).

Unless the basis of the Employer contribution changes, I doubt it would matter under which document it was made.

I would produce a blackout notice and have it in the file. This way, the owner isn't going to try to sue anybody if he comes across that once-in-a-lifetime investment opportunity during the blackout that he wasn't allowed to get into.

Is there going to be more than one brokerage account for each source? Or are you going to value the money sources once a year or so?

Totally agree with this. I'd probably use a restatement date of now with a plan effective date back to the original effective date of the plan.

Even though it is a 1 man plan, he just needs to make sure there are no prohibited cutbacks going from one doc to the other. Doesn't sound like an issue since they seem to beswitching to get more options, namely ROTH ability.

Thanks for your input. Regarding the separation of sources, it looks like it has not been tracked by Fidelity. They just provided a yearly valuation form for the total assets. But the employer discretionary and employee deferral contributions could eventually be reconstructed if needed. However there was no separate account for each. From now on, there will be two separate accounts, one for the non-Roth portion (consisting of both employer and deferral parts), and one for the Roth portion.

[Bird]

Regarding the separation of sources, it looks like it has not been tracked by Fidelity. They just provided a yearly valuation form for the total assets. But the employer discretionary and employee deferral contributions could eventually be reconstructed if needed. However there was no separate account for each. From now on, there will be two separate accounts, one for the non-Roth portion (consisting of both employer and deferral parts), and one for the Roth portion.

Like I said, the ready availability of such "free" documents just gets people into trouble. It may never matter that sources weren't tracked separately...but it might. Fidelity and their ilk don't do squat in terms of admin or compliance, yet there's obviously an assumption that they are in fact doing something, since they are providing a document. Well, at least you'll have the Roth stuff carved out.

[movedon]

...Fidelity and their ilk don't do squat in terms of admin or compliance...

Ha, until you call them up and tell the person answering the phone to do something re the assets, and suddenly he/she is a pension expert explaining to you why they can't do what you want... like insisting that you fill out "distribution paperwork for the 1099" when you are just trying to move the plan and transfer the assets to a new provider. Yeah Fido, we know how you do. Woof.