Annual Valuation Only Profit Sharing Plan - Mid-year distributions

[CintiTwo]

I have heard of plans which only have annual valuations holding a certain percentage of plan-year distributions in escrow until the next valuation date, at which time the escrow can be released after adjusting for gains or losses during the period between valuation dates.  Has anyone seen any official IRS word on such procedures?   

[K2retire]

I have heard of that being done, but it is the exception rather than the rule for balance forward plans. Typically the plan document will dictate what options are available for things like that.

[Tom Poje]

if it hasn't been done before and it turns out the distribution is for an HCE, and therefore he is going to get the advantage of the great gains for this 2017 year based on his 12/31/2016 it smells worse than the refrigerator after a weeks power outage.

yes, interim vals are done from time to time, e.g. in the case of an HCE with a large balance and the plan lost big $ then you were pretty much forced to do so - back when the stock market collapsed a few years ago this was done on plans - there were situations in which you didn't have enough to even pay out the balance as of the end of the prior year.

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If the doc says assets are valued once a year it also takes an amendment for the purpose of running the gains/loss.

[ESOP Guy]

If this is a concern you move to something besides annual valuations. 

I have seen plans changed so that in-service distributions are partial payments until the next valuation is done.  The change was done back when the market was dropping and it was a hospital.  One doctor figured out that he could get his prior 12/31 balance in Nov via an in-service distributions and the market had dropped that year.  Word spread like fire among the doctors in the hospital and there was a "run on the bank". 

The plan was changed to say if you request an in-service payment you got 70% of your prior valuation balance and after the next valuation was done you got the true up amount.  They also moved to quarterly earnings allocations. 

I have never heard of putting it in an escrow.  To me why not just leave it in the plan if you aren't going to give the person the money?  You then allocate earnings next year end as fast as you can and pay the person.  Or pay a 70% or so payment with a true up after the next earnings allocation?  I am not seeing any advantage to an escrow.

[pmacduff]

Our plans also have language similar to what ESOP Guy mentioned whereby the participant gets 70%  of the vested balance as of the last valuation date with the remainder to be paid after the next following val date.  It came to pass in most of our plans due to those who retired wanting to get at least some portion of their balance out immediately upon retirement.

[CintiTwo]

Thanks - I have a plan considering an amendment to address the issue and so wondering what people have done.  With the escrow idea, it would be uniform for all distributions until the investment allocation is complete at the end of the year.  

Quarterly allocations can still be "gamed"  so the plan desires some sort of method for true-up after the annual valuation.

It seems such amendments should  be addressed in anti-cutback guidance, but I do not see anything