special valuation of a pooled profit sharing account

[Pixie]

I have a $900,000 plan with 30 lives.   One deceased participant has an account of $300,000 in this pooled account.   We run quarterly valuations.  The trust value has dropped 7% since the end of the last quarter.  Are we permitted to run a special valuation to pay him and two others out?  The other two distribution elections just happened to come in at the same time.  

I would hate for all of the other smaller accounts to absorb the loss.

Regards, 

Pixie

 

[chc93]

The Plan Document should specify if valuations can be done other than quarterly based on Plan Administrator's discretion.

[Larry Starr]

6 hours ago, Pixie said:

I have a $900,000 plan with 30 lives.   One deceased participant has an account of $300,000 in this pooled account.   We run quarterly valuations.  The trust value has dropped 7% since the end of the last quarter.  Are we permitted to run a special valuation to pay him and two others out?  The other two distribution elections just happened to come in at the same time.  

I would hate for all of the other smaller accounts to absorb the loss.

Regards, 

Pixie

 

Unless you have a badly written document, there almost certainly is a provision in it that allows the trustees to do valuations on other dates at their discretion.  Our plans are mostly annual valued / end of year plans, but when distributions are made that are either LARGE dollar amounts, or a large percentage of the plan assets AND there has been a "significant"change in the underlying values due to market changes, we generally recommend an interim valuation be done.  And no, doing an interim val at some point does NOT set a precedent that then requires that interim vals be done all the time.

[Bird]

I agree with answers above.  Some additional thoughts - with quarterly vals, it seems you could almost handle this within those parameters, i.e. without a special val.  Maybe it's too late now, but if you knew of a $300K distribution pending before 9/30, then you "just" move $300K to cash so that you are effectively carving out that participant's distribution.  I guess if the distribution request came in after 9/30 it would be a stretch to make them wait until after the end of the year, so maybe you are stuck with a special val anyway.

With the way the market is gyrating now, I think I'd suggest that  general approach anyway - move the $300K to cash now and then do the special val so you're not constantly chasing your tail.

[Luke Bailey]

Agree with all of the above, but would suggest that on a going forward basis you amend the plan so that distributions use the valuation for the last day of the quarter in which the individual terminated or submitted distribution request, whichever later, not the last quarter end before the quarter in which participant terminated. Even with that, you should also have a provision in the plan giving plan administrator (or trustee, if not an institution) the discretion to add discretionary valuation dates, to take care of situations where assets have declined between quarter end and date valuation complete.

If your plan and/or trust document(s) do not currently provide for interim valuations, you might think of amending now retroactively. My recollection is that there are several cases where retroactive application of such amendments has been litigated, but I don't recall how they came out. You should definitely do research on those cases before retroactively amending the plan here to add an interim valuation.