Pooled Acct Amend to Allow Dist in Year of Term?

[AmyETPA]

PSP only pooled account.  Client is considering amending plan from distributions as soon as administratively feasible in plan year following termination to as soon as administratively feasible in year of termination.  We never do that and have our reasons but just trying to think through if I'm missing anything.  Who allows this?  What kind of issues do you encounter?  Plan has a right to an interim valuation if warranted and will be doing that this year if they make this amendment.

[chc93]

For our few pooled plans, standard practice is to pay as soon as administratively feasible after termination.  Only if termination is in December for calendar year plan, for example, we might suggest that the distribution is held until the December valuation is completed, regardless of annual gain or loss.  Never thought of distributions processed as soon as administratively feasible in plan year following termination.  Interesting...

[Tom]

For the very few we have remaining, we wrote into the document for the plans to be quarterly valued.  So they get earnings through the end of last quarter AND Trustee/Administrator has the option to request a special valuation which which we charge of course.  I don't think the regular employee would think this way - oh I can get my March 2022 value out since that was the last quarter so I will request distribution now and avoid loss allocation.  If it's an immaterial balance prior quarter is fine.  But a large balance then if Trustee doesn't elect special valuation we may reach out and advise that they do request one.  Most of out plans are 3% nonelective safe harbor and so the final contribution for the year of termination plus potential gateway and PS, means another distribution process a year later!

[Dare Johnson]

This has always been an issue when the markets are down significantly.  The few non-daily plans we have left will pay our a percentage of the last valuation (usually 60-70%) with the remaining after the next valuation.  This is fair to the remaining participants.

[Luke Bailey]

I strongly second Dare Johnson's suggestion for pooled investments when markets volatile (really, always, because you never know when they'll become volatile). You want to have frequent valuations (quarterly, monthly), and pay out based on the next valuation date following the receipt of the completed distribution request. If you want to pay out a percentage in the meantime, you can do that. More need for that if you're using less frequent valuation dates. You still need to reserve the right to do special valuation dates if there is a large market swing. And it all needs to be put into your plan document and communicated in an SPD or SMM.

[ESOP Guy]

It is the volatile market problem.   I used to do nothing but pooled balance forward plans.  Back in 2008 we had a hospital that had to amend their plan that allowed for in-service distributions based on the last annual valuation.   A doctor figured out in Oct 2008 he could get his Dec 2007 balance by asking for an in service distribution.  He told his fellow doctors and started a run on the bank.   It was going to stick the people who didn't take a payment in 2008 with all of the 2008 losses.   That is not a good/fair way to run a plan. 

 

The plan was changed to you can get 70% of the last valuation balance with a true up after the next valuation.   They even hired us to do quarterly valuation updates. 

[Nate S]

Agree with the above suggestions, usually limit to 50% of the prior valuation balance, and maybe up to the deferral basis amount so that the ER isn't holding employee monies for any extended time.  But barring a significant withdrawal, usually try to avoid interim valuations.