Document says all assets are held at this brokerage firm

[Jim Chad]

Let's say we are using ABC brokerage company's prototype. It has a

paragraph in the doc that says "all assets will be held at ABC
Brokerage firm"

Does everyone follow this completely? What would happen if you didn't?

[QDROphile]

The plan is likely to end up with violations of the trust rules, plan terms, and distribution restrictions.

[Peter Gulia]

How common is it for an IRS-approved prototype or volume-submitter document to restrict a user plan's investments to those of the document sponsor and its affiliates?

Which providers do it this way?

[Jim Chad]

I think most of the free docs do this. Vangard and American funds for example do this on their SEP prototype. And that is what I am trying to help with. The Sponsor has a 403(b) so he cannot use the 5305 SEP. I wonder if they will have to switch to a 401(k).

[ESOP Guy]

I have always wondered if this could be seen as a fiduciary issue. Is the choice of plan document a sponsor decision alone as it could have been done before the plan even existed?

The closest example I can think of is back in the '90s you heard of banks requiring companies to move their 401(k) assets to the bank's trust department as a condition for a loan. The objection was the transfer wasn't done for the exclusive benefit of the participants.

In this case the choice of where to put the assets could be seen as being done in part to save the sponsor money on a document and not to benefit the participants.

I am more spit balling then making a strong case as fiduciary issues aren't my strongest subject but I have come to believe that of all the issues in retirement plans this is often times one of the most ignored.

[Bird]

I think it is common, especially, as noted, for free documents.

And I wouldn't just look the other way. Failure to follow the terms of the doc is a DQ event. And/or it might make it an individually designed document - I think I saw one once where it said if all assets weren't with XYZ co, that XYZ was no longer the sponsor.

Somehow I think there are prototype SEPs with more flexibility but I'm not sure.

[austin3515]

It wouldn't be a fiduciary violation merely because the document restricted where the money could be invested. Mind you most the so-called "free documents" are for Solo 401k's anyway and last I checked they were exempt from ERISA :P

[My 2 cents]

Am I wrong in thinking that there could be nothing to prevent the sponsor from amending the plan and moving the money elsewhere? It's not as though investment houses are protected by IRC 411.

[austin3515]

You would presumably lose reliance on their opinion letter.