Active participant withdrawal from DC rollover in DB plan allowed?

[Manatee]

 

We have several small DB plans here that have had balances from terminated DC plans rolled into them (prior to my time here).  The plans do have provisions to accept rollovers.  There does not appear to be any specific language regarding the eventual distribution of the rollover money, aside from an election to exclude it from amounts considered for purposes of small automatic cash-outs.  The rollover money has always been treated as an account balance unrelated to the DB calculations, and RMDs from the rollover have been based on the account balance method (correct according to a 2009 thread here).

I have two questions:

1) Absent any plan language about in-service withdrawals, may the participants access their rollover money without terminating, retiring, or receiving RMDs?

2) Is there any advantage to this over simply rolling the DC balance directly into an IRA?  I understand this might be desirable if someone wants to use their DC money to increase their annuity from a DB plan (assuming the DB plan provides for this), but I don’t see the advantage to attaching it to the DB plan if it’s just going to remain an account balance.

 

[Bird]

16 hours ago, Manatee said:

1) Absent any plan language about in-service withdrawals, may the participants access their rollover money without terminating, retiring, or receiving RMDs?

I would think the plan should have language either permitting or not permitting a distribution of a rollover at any time - it can.  If not, I think you'd have to assume it is not permitted.

16 hours ago, Manatee said:

2) Is there any advantage to this over simply rolling the DC balance directly into an IRA?  I understand this might be desirable if someone wants to use their DC money to increase their annuity from a DB plan (assuming the DB plan provides for this), but I don’t see the advantage to attaching it to the DB plan if it’s just going to remain an account balance.

I see no advantage.  I suspect it is just the way someone always did it, and suggested* that participants do so. 

*Actual practice might range from an open discussion of all options, to only giving that option, to just doing it and calling it a "rollover" when it really was more of an impermissible merger or something similar.

[Manatee]

Thanks, Bird.

That was my thinking as well, but I've only been working on small plans for a few years and wondered if there was something that made this useful sometime in the past.

[Effen]

One big advantage might be fees.  Individuals pay a significantly higher fee for investments inside an IRA. If they are happy with the asset allocation in the DB plan it would give them access to professional management for a fraction of the cost.  Plus, more assets in the trust means lower fees for everyone (as a % of total assets).

[Manatee]

 

40 minutes ago, Effen said:

One big advantage might be fees.  Individuals pay a significantly higher fee for investments inside an IRA. If they are happy with the asset allocation in the DB plan it would give them access to professional management for a fraction of the cost.  Plus, more assets in the trust means lower fees for everyone (as a % of total assets).

 

That makes sense in cases where the plan is big enough to get a break on fees, but most of these are "micro" plans and for the most part have their assets in ordinary brokerage accounts.  To the best of my knowledge, the DB plan assets aren't getting a better deal on fees than IRAs would get from the same firms.

 

[Draper55]

If the plan has a loan provision then maybe you would want it in the db plan versus an IRA.  Further, some people just like having all there money in one place. Also, many IRAs have an annual fee which can be avoided by having the money in the db plan...Doesn't the document say when a participant can access their rollover account?