Pooled Account w Ppt discretion

[Guest GinaD]

This is my first time posting in here so I really appreciate any feedback.

The client has a pooled account that contains the account balances of all participants however the client allows participants to pick investments within the pooled account. The account is valued annually. Historically when a participant is paid out they are given their distribution based upon the last valuation done and do not share in gain/loss that occurs between valuation date and date of distribution. The gain/loss is divided up among the remaining participants within those specific funds. The basic plan document states that gains/losses in a pooled account with participant investment discretion should be applied reasonably.

The plan recently had a participant who took a distribution based on the last valuation date. In the following valuation period, it was discovered that the participant paid was the last participant who was invested in a couple of the funds therefore there we no longer had any remaining participants in the fund to be given the investment gain. How should that gain be applied?

Should the gain go to that specific participant and he would be given a trailing distribution on those funds or should the gain go to the rest of the plan participants since historically no other participant ever received a gain after they took their distribution? My concern is that if I give him the gain when one has never been applied in the past to other participants, that this would be discriminatory. I also have a hard time in giving him a gain in only some of the funds he was invested in. If I think he is entitled to the gains to the 4 funds that he was the last person invested in, shouldn't i need to give him gains on all the funds that he was invested in?

I try to think about what I would have done if the plan had experienced a loss and there was not enough funds to pay him out. I probably would have told the client that I needed to do an interim amendment and in that case he would have received the gain/loss through the interim date but again that would have been based up a new valuation being done.

[Bird]

I think I would allocate the trailing gain pro-rata among the other participants, based on total balances.

I would also re-think handling the investments this way. It sounds pretty awkward to me.

[ESOP Guy]

First I think they need to decide do they want a pooled account or participant directed account plan. This mix and match style is going to keep causing these kinds of problems in my mind.

Most plan documents have a provision in them that gives the Plan Administrator the ability to make reasonable, non-discriminatory decisions on how the plan is run when the document is unclear or silent on the issue.

So I think the administrator can decide what they like as long as it is reasonable and non-discriminatory. For what it is worth I think paying this person or reallocating across all remaining accounts would be reasonable and most likely non-discriminatory. I would advise documenting the decision as you have set a precedent and I would follow it in the future.

Lastly, I would figure out now how to handle the loss because it will happen.

[Guest GinaD]

Thank you both!