Benefit, Right, Feature

[Craig Schiller]

Have a prospect which has about 10 current employees with accounts at Schwab and 5 prior terminees with accounts at Schwab. Client wants to require all current and future employees to transfer their Schwab accounts to accounts at T. Rowe Price on a website, but keep all the 5 accounts for prior terminees at Schwab, while trying to find them and hopefully paying them out.

I read below from 1.401(a)(4)-4 that I test these 5 separately as to BR&F, so it doesn't matter if all 5 "frozen participants" cannot move their money, and all 10 currently benefiting must, even if all 10 are HC's and all 5 are NHC's or vice versa. (See below for definition of a frozen participant.).

Just want to make sure I am reading this correctly. Anyone agree? Disagree?

Thanks,

Craig Schiller

(2) Frozen participants. A plan must satisfy the nondiscriminatory availability requirement of this section not only with respect to benefits, rights, and features provided to employees who are currently benefiting under the plan, but also separately with respect to benefits, rights, and features provided to nonexcludable employees with accrued benefits who are not currently benefiting under the plan (frozen participants).

[My 2 cents]

Have a prospect which has about 10 current employees with accounts at Schwab and 5 prior terminees with accounts at Schwab. Client wants to require all current and future employees to transfer their Schwab accounts to accounts at T. Rowe Price on a website, but keep all the 5 accounts for prior terminees at Schwab, while trying to find them and hopefully paying them out.

I read below from 1.401(a)(4)-4 that I test these 5 separately as to BR&F, so it doesn't matter if all 5 "frozen participants" cannot move their money, and all 10 currently benefiting must, even if all 10 are HC's and all 5 are NHC's or vice versa. (See below for definition of a frozen participant.).

Just want to make sure I am reading this correctly. Anyone agree? Disagree?

Thanks,

Craig Schiller

(2) Frozen participants. A plan must satisfy the nondiscriminatory availability requirement of this section not only with respect to benefits, rights, and features provided to employees who are currently benefiting under the plan, but also separately with respect to benefits, rights, and features provided to nonexcludable employees with accrued benefits who are not currently benefiting under the plan (frozen participants).

I would not think that prior terminees would fall into the category of frozen participants, by virtue of the fact that they are not employees at all.

[Bird]

I have an older version of the regs in one of my files (1993) for this very reason. It doesn't say exactly what this says (actually refers to "former employees" and "former HCEs") but I think they kept the intent; that you can look at current and former (or frozen) groups separately. As long as you are not favoring former HCEs in the former/frozen group.

I might have to concentrate harder than is possible for me at this very minute, but I think they more or less expanded the definition by changing "former" to "frozen" - that is, as I see it, "frozen" could mean current employees or former employees.

[My 2 cents]

Naive question: Would access to one investment firm instead of another be considered an advantage at all, to the extent that it would be considered as rising to the level of being a BRF issue?

[Bird]

Naive question: Would access to one investment firm instead of another be considered an advantage at all, to the extent that it would be considered as rising to the level of being a BRF issue?

That's a different issue, but yes, I think so. With a caveat that if the firm itself has some kind of restriction, usually minimum asset-based, then it might be ok. IOW the plan is not imposing the restriction.

[BG5150]

Well, they are changing carriers for a reason. The reason should ostensibly be for the benefit of the participant. After all, the plan exists for the sole interest of its participants, right? Right?

If this doesn't benefit the participants, why the move?

These 5 former employees, but still participants, still deserve the right to have the same investment alternatives and fee structure (and access to investment adviser, and website capabilities, etc.) as all the other participants.

[Mike Preston]

No, they don't.

The rule is that any disparity that exists should not be one that unfairly discourages a member of the terminated group from continued participation. Think two-tiered fee structure where terminated folks are charged 10 times what others are charged. Not good. But if they are charged their fair share of administrative expenses while actives have the administrative expenses paid by the plan, that is fine.

In this case unless the two options are markedly different for some reason I can't see it being an issue.