Question about (QRP) Qualified Replacement Plan investments from terminated DB plan

[Indiana Joes]

We’re dealing with excess assets from a terminated traditional defined benefit (DB) plan that are being moved into a 401(k) profit sharing plan as part of a Qualified Replacement Plan (QRP).

Can the QRP funds be moved into a cash or money market account earning little or no interest while the rest of the plan's assets remain invested? This is a one-participant plan, not sure if that makes a difference.

The existing plan assets are invested in volatile securities, and the account owner is concerned that market swings in the suspense account could prevent us from using up all of the QRP funds within the required 7-year period. I couldn’t find anything indicating that QRP funds must be invested in the same way as the rest of the plan — does anyone know if that's a requirement?

Appreciate any insights!

[david rigby]

Who says, "the rest of the plan's assets remain invested?"  Isn't the investment of all parts of the asset pool a fiduciary decision?

[CuseFan]

For solo plan I don't fiduciary issue is concern and would park in cash/money market.

Even if plan was participant directed and had fiduciary concerns, I think investing the suspense in a non-volatile fund would be prudent - IMHO.

[Artie M]

Just to make sure, one participant plans are not subject to ERISA if the sole participant is the owner of the business (because there are no common law employees).  But if the sole participant is a common law employee who is not the owner then it is subject to ERISA.  Not being subject to ERISA means it would be exempt from the fiduciary duty rules (it is subject to the Code but that doesn't contain the fiduciary standards).  That said, even if subject to ERISA, investing it differently from the other plan assets wouldn't necessarily be a fiduciary violation as long as it was a prudent decision.  However, investing it differently to ensure a lower return does not seem prudent (given what will surely be the DOL's stance in this political environment.... all that matters will be the pecuniary factors).  Also, it seems that essentially your client doesn't want to make money because they don't want to pay taxes.  So let's take an example....  excess transferred is $100K and over 7 years it earns $50K when invested in volatile stock.  $100K is allocated within the 7 years leaving the 50K to be reverted.  So then he has to pay let's say 60% on the $50K (20% reversion tax plus income tax... the taxes are just on the amount that wasn't allocated in the 7 years) and they net $20K after taxes.  ...So he is willing to forego the $20K just so he doesn't have to pay the $30K in taxes???  God forbid it made $100K earnings during this time.