Liquidation of participant-directed brokerage accounts authorized by plan trustee

[lisabroc]

We have a 401(k) client that is in the process of converting the participant-directed individual brokerage accounts held by a large wirehouse firm to a retirement plan recordkeeper/investment provider. The trustee provided a letter authorizing the liquidation of all of the assets in the accounts but the firm is insisting that the participants call to authorize the liquidation of their investments. According to the brokerage firm, it is a FINRA rule. However, the trustee made the decision to liquidate and transfer the plan assets another provider and provided the required black out notice and it should not be up to the participant to initiate the trades of the stocks/bonds held in the accounts. Has anyone encountered anything like this in their experience?

[Lou S.]

Been awhile since I've run into this but informing them that they are taking on direct fiduciary liability for ignoring the Plan Trustee's written direction often gets them moving in the right direction.

[Griswold]

I'd be curious to know which FINRA rule they're talking about if you can get a citation out of them.

[ESOP Guy]

My guess is someone at the brokerage house also doesn't understand who really owns the account. While it might look like the participant owns the account the reality is the trust does. As such the trustee can do what is being requested. It might help to try and get them to see that fact.

[lisabroc]

Thanks very much for the comments! That's the problem when brokerage firms treat plan accounts the same as retail accounts. They don't understand ERISA rules and their compliance department isn't any better. I will relay these points. They are getting hung up on only accepting sell orders from the participant and not the trustee.

[Bird]

It's probably all about how the account(s) was/were set up in the first place. There's "right" and there's what is in their system. Might be able to convince them they fubar'd it in the first place but they might want to "re-paper" it all. Good luck...

[jpod]

Yeah, I was going to ask how confident are you that the accounts were set up the way they should have been set up to alert the b/d to the true nature of the accounts. Good chance they weren't.

[Griswold]

To echo bird and jpod's point, I've come across this resistance before when the accounts weren't properly set up (but in a 403(b) context.)

[lisabroc]

That's a very good point as to how it was set up to begin with and that may be part of the problem. Most broker/dealer firms require a Trustee Certification Form in lieu of the actual plan and trust document which clearly spells out the rights and powers of the trustee. At most, they should require a call from the plan trustee to initiate the sell orders. Will see how this plays out.