Employee Does not Want Money Purchase Benefit

[Benefits Vet]

I have a plan sponsor with an unusual money purchase plan. The participant's can set up their own brokerage accounts to receive contributions from the plan sponsor. Each participant is the trustee of their own account. 

An employee who is eligible to receive the next quarterly contribution is leaving the employer to live in Europe before the contribution is made. Long story short, she cannot open a brokerage account and just "does not want" the contribution. 

Thoughts about how to resolve this? I don't think that the employer can just not make the contribution. 

[Bill Presson]

Just because a participant can do something doesn't mean they have to do so. If a participant can direct the investment of their money but chooses not to, then the trustee of the plan has to set up the account and invest the money for the participant.

And are you sure the participants are actually trustees of their own account? That would be incredibly unusual and I'm not even sure it can be done.

[Bri]

Wow - she actually signed the plan's Trust agreement and wants to avoid her Trustee responsibility?  And is she going to be vested in this contribution?

(I'm going to defer to the actual lawyers on here but figured we should get all *those* specifics ahead of time.)

[BG5150]

34 minutes ago, Bri said:

Wow - she actually signed the plan's Trust agreement and wants to avoid her Trustee responsibility?  And is she going to be vested in this contribution?

(I'm going to defer to the actual lawyers on here but figured we should get all *those* specifics ahead of time.)

I think you misread the first post.  It's not the plan sponsor who doesn't want the account, but an employee/participant.

[MoJo]

18 hours ago, Benefits Vet said:

I have a plan sponsor with an unusual money purchase plan. The participant's can set up their own brokerage accounts to receive contributions from the plan sponsor. Each participant is the trustee of their own account. 

An employee who is eligible to receive the next quarterly contribution is leaving the employer to live in Europe before the contribution is made. Long story short, she cannot open a brokerage account and just "does not want" the contribution. 

Thoughts about how to resolve this? I don't think that the employer can just not make the contribution. 

This is normally when I provide my checking account number and vow to hold the money.....  ☺️

I agree with Bill.  If the plan provides for a benefit for her, but she is unwilling to accept responsibility for it's management, it's up to a plan fiduciary to do so.

BTW, I'm not sure the "everyone is trustee of their own account" would survive if challenged.  The plan administrator may not be able to "properly delegate" that responsibility - especially if the participant refuses, and can't make the contribution contingent upon their doing so....

 

[Bri]

BG5150 - I was referencing the line that the participant is also a plan trustee.   We all seem to be doubting that each employee gets to be a trustee like that.  If the participant is a capital-T Trustee for realsies and refuses to accept the contribution/set up the account, that's certainly problematic, no?

(And might there be other Trustees upon whom the responsibility might fall to set up the account as directed by the employer?  I asked about vesting because if she was going to leave while nonvested, they could set up a dummy account to hold the soon-to-be-forfeiture.)

[Benefits Vet]

There are other trustees- but each participant is a limited trustee with respect to their own account.  Thanks for all the help!! I agree that the the best/only option is for the employer to set up an account on her behalf. 

[BG5150]

By "limited trustee" do you mean they have control over the investments in the account?  That discretion would not include the decision to not accept contributions, IMHO.

All of the accounts should be titled under the Trust ID as FBO the participant. 

[Luke Bailey]

On 1/19/2022 at 4:42 PM, Benefits Vet said:

There are other trustees- but each participant is a limited trustee with respect to their own account.  Thanks for all the help!! I agree that the the best/only option is for the employer to set up an account on her behalf. 

What's the advantage of this arrangement over having a 404(c) plan? Was the employer so risk averse they didn't want the responsibility of choosing an investment menu and though that making each participant his/her own trustee for account would totally insulate from liability? Did they consider a SEP?

[MoJo]

10 hours ago, Luke Bailey said:

What's the advantage of this arrangement over having a 404(c) plan? Was the employer so risk averse they didn't want the responsibility of choosing an investment menu and though that making each participant his/her own trustee for account would totally insulate from liability? Did they consider a SEP?

(In the past) some thought this type of arrangement *was* the ultimate 404(c) compliant plan.  Wide open investment options, daily (and even intra-day) trading, and all the information in the world provided by the brokerage house.

I never bought into that scenario, and the DOL has subsequently indicated that a "core lineup" was necessary as a fiduciary responsibility, as many (most, in my experience) are clueless on how to invest.  So, not only is this arrangement *not* 404(c) compliant, it may actually be a breach of the plan administrator's fiduciary obligations.

[BG5150]

2 hours ago, MoJo said:

So, not only is this arrangement *not* 404(c) compliant, it may actually be a breach of the plan administrator's fiduciary obligations.

I've been reading that for years now, ever since the disclosure regs were being discussed.

Does anyone have first-hand knowledge where the DOL actually took a fiduciary to task over this issue?