Annual pooled account statements (when markets have changed)

[TPApril]

Just curious ---- for old school plans that have all accounts in a pooled trust, no participants can make elections, they get one annual statement.  As we send these out, I'm curious if others are sending out statements as related to the current (and quite large) decrease in market value.  As it is we intend to communicate to clients that we recommend a 3-31-20 special allocation for new distributions, and we will need to communicate something to participants.

[RatherBeGolfing]

Just curious, are you a fiduciary to the plan?

[Lou S.]

I would recommend to the Trustees that they seek counsel on their fiduciary duty to possibly have an interim valuation, particularly if there are distributions that may represent a sizeable portion of the Plan assets. But since we are not a fiduciary, it would only be a suggestion. That said if Trustees do pay out large balances based on inflated 12/31 values and the remaining participants should pursue a lawsuit, do you think the TPA will not also be named in such a law suit and need to retain counsel, even if just to try to separate themselves from said lawsuit?

[Larry Starr]

1 hour ago, TPApril said:

Just curious ---- for old school plans that have all accounts in a pooled trust, no participants can make elections, they get one annual statement.  As we send these out, I'm curious if others are sending out statements as related to the current (and quite large) decrease in market value.  As it is we intend to communicate to clients that we recommend a 3-31-20 special allocation for new distributions, and we will need to communicate something to participants.

Yes, we TALK about the possibility of the trustees/plan administrator doing an interim valuation to adjust the 12/31 value to a more "up to date" valuation of the account if there has been a significant underlying market adjustment (either up or down).  But the call is always the employer's. And  I assume you mean a 3/30/20 special "valuation", not allocation. Our statements are always as of the plan's stated valuation date (the last day of the plan year); if we do an interim valuation, we do prepare new benefit statements for all participants. We don't need to communicate anything specifically to the participants; our distribution forms package says that the 12/31 value may be adjusted at time of payout, and the SPD has language talking about possible interim valuations. 

[TPApril]

RatherBeGolfing, Lou S, Larry Starr:  Thank you.

No I'm not a fiduciary, just trying to bounce around ideas on how to approach this. Many of said clients have their plan docs provided by TPA so no ERISA attorney at hand to easily question.

Yes Larry I mean 'valuation' and based on early work experience office terminology have frequently incorrectly interchanged the terms.

Larry: because you put that wording on your distribution forms, and not on participant statements, is it appropriate to hand out 12/31 participants statements along with distribution forms package without more explicitly stating that there may be a 3/31/20 valuation?

[Larry Starr]

44 minutes ago, TPApril said:

RatherBeGolfing, Lou S, Larry Starr:  Thank you.

Larry: because you put that wording on your distribution forms, and not on participant statements, is it appropriate to hand out 12/31 participants statements along with distribution forms package without more explicitly stating that there may be a 3/31/20 valuation?

Yes; it's full appropriate. The statements say 12/31/xx on them.  The distribution forms tell them it might be different when paid out.  All is covered.

[RatherBeGolfing]

1 hour ago, TPApril said:

No I'm not a fiduciary, just trying to bounce around ideas on how to approach this. Many of said clients have their plan docs provided by TPA so no ERISA attorney at hand to easily question.

I think we are dealing with two separate issues. 

1) Can you do it (does the document allow for it)

and

2) Should you do it

Issue 1 is appropriate for you to answer as a non-fiduciary, I do not think issue 2 is.  You can (and probably should) tell them about the availability and suggest that they review, and seek outside counsel if necessary, but I wouldn't go as far as recommending it.  

[Belgarath]

Yeah, we just had this issue come up, and of course the distribution is to a HC offspring of the owners. There are two other HC owner/Trustees, and we explained the issue, and left the choice up to THEM. They haven't decided yet...

[Peter Gulia]

Just curious, if one suggests an extra valuation when the plan trust's investment values are down, does one also suggest an extra valuation when the plan trust's investment values are up?

Or is there a different reasoning about the way down?

 

[RatherBeGolfing]

2 minutes ago, Peter Gulia said:

Just curious, if one suggests an extra valuation when the plan trust's investment values are down, does one also suggest an extra valuation when the plan trust's investment values are up?

Or is there a different reasoning about the way down?

 

I had one client do it last year.  Several long tenured staff members retired, and the shareholders decided that a special valuation was warranted to credit them with significant earnings.

Another client just adopted a policy that for 2020, a special valuation will be done as of the last day of the month when a distribution is requested, and that is what the distribution will be based on, whether up or down from the last valuation.

[Peter Gulia]

Thanks.

[Larry Starr]

2 hours ago, Peter Gulia said:

Just curious, if one suggests an extra valuation when the plan trust's investment values are down, does one also suggest an extra valuation when the plan trust's investment values are up?

Or is there a different reasoning about the way down?

 

Yes; the same criteria: either a LARGE distribution, OR a significant change (up or down) in the asset values of the plan.

[Peter Gulia]

Thanks.

[Pension19]

Question to those above.  If the account is a pooled account and the plan time weights the distribution, is it necessary to do an interim for a participant requesting a distribution?  The policy is to pay in-service, time weight it and check that the request is no more than 80%.  Normally the request is a dollar amount that does not exceed 80% of the participant's 100% vested balance.

[Larry Starr]

3 hours ago, Pension19 said:

Question to those above.  If the account is a pooled account and the plan time weights the distribution, is it necessary to do an interim for a participant requesting a distribution?  The policy is to pay in-service, time weight it and check that the request is no more than 80%.  Normally the request is a dollar amount that does not exceed 80% of the participant's 100% vested balance.

Why didn't you tell us what kind of distribution this is?  But let's assume it is an allowed in-service distribution (maybe, say, a post retirement age employee wanting a partial payout). So the answers....

Yes, an interim val is needed, unless....

Yes, it should be done.  Now what's the "unless" about?  If the amount is clearly a small part of his account and you can go back later and recapture all the necessary data to do the interim valuation later as of the date of distribution, then I suppose it is possible to make the distribution without doing the interim val AT THAT POINT, but catching up later. However, while I can see this situation, it is not one I would ever voluntarily want to try to make work.  Don't make your client's problem your problem!

[Pension19]

On 3/20/2020 at 12:12 PM, Larry Starr said:

Why didn't you tell us what kind of distribution this is?  But let's assume it is an allowed in-service distribution (maybe, say, a post retirement age employee wanting a partial payout). So the answers....

Yes, an interim val is needed, unless....

Yes, it should be done.  Now what's the "unless" about?  If the amount is clearly a small part of his account and you can go back later and recapture all the necessary data to do the interim valuation later as of the date of distribution, then I suppose it is possible to make the distribution without doing the interim val AT THAT POINT, but catching up later. However, while I can see this situation, it is not one I would ever voluntarily want to try to make work.  Don't make your client's problem your problem!

Okay, so to clarify this was an in-service request.  The plan is valued quarterly.  Due to the current market situation, a decision was made to pay 70% of the vested balance which was still a significant amount and the distribution will be time weighted.  We wanted to allow room for a loss on the plan assets.

After the above question was asked, another situation has come about.  A terminated participant has asked for a distribution, again, the last quarterly valuation was 1/31/2020, the process has been to pay the terminated participant based on the last valuation.  Since  the market is down  we cannot in good faith pay that amount and are contemplating paying 75% of the 1/31/2020, again time weight the distribution and then after the next valuation 4/30/2020, pay the remaining balance to the terminated participant.  We understand that we could do an interim valuation of the assets as of 3/31 but where do you draw the line in doing interim valuations? 

[Mike Preston]

The plan fiduciaries have to make that call.