B21 Posted February 19, 2019 Posted February 19, 2019 Our client is considering splitting their existing 401k plan into two separate plans through a spin-off to avoid a Form 5500 audit requirement on the existing single plan. To effectuate a spin-off, does the plan assets for the spun-off plan have to be physically transferred to a separate custodial account or can the accounts remain where they are if the custodian is able to segregate the accounts among the two plans within the single contract? My inclination is no, that the plan assets have to be transferred to a new account under the new plan name & number.
Bill Presson Posted February 19, 2019 Posted February 19, 2019 I think you could keep the assets "combined" if the assets were in an 81-100 group trust. William C. Presson, ERPA, QPA, QKA bill.presson@gmail.com C 205.994.4070
B21 Posted February 20, 2019 Author Posted February 20, 2019 I left out an important fact. The plan has been filing as a large plan & attaching the auditor's report since 2013. Therefore, the group trust currently exceeds 100 participants. Does this matter? Client is trying to eliminate future audit requirements.
Bug on my window Posted February 20, 2019 Posted February 20, 2019 The trustee must recognize that the two pools of money are separate, so they can make the annual ERISA statements each year for each separate pool. As a side note, I understand that splitting a plan solely to avoid the audit requirement is not looked upon favorably. Is there another reason/division for the split? Some natural division between two groups that are getting different benefits? rr_sphr 1 The above is my opinion only, not anyone else's. I'm not a lawyer nor do I play one on TV.
Mike Preston Posted February 21, 2019 Posted February 21, 2019 7 hours ago, Bug on my window said: The trustee must recognize that the two pools of money are separate, so they can make the annual ERISA statements each year for each separate pool. As a side note, I understand that splitting a plan solely to avoid the audit requirement is not looked upon favorably. Is there another reason/division for the split? Some natural division between two groups that are getting different benefits? The trustee only need invest in accordance with the trust documents. If the trust documents allow pooled funds then there is no need to physically separate the investments. Please provide a citation to back up what you mean by "not looked upon favorably". In my experience it is done without hesitation.
B21 Posted February 22, 2019 Author Posted February 22, 2019 The accounts are individually self-directed.
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