Distribution to Terminated Participant Whose Account Balance is Direct

[chris]

Participant in a profit sharing plan terminated employment shortly prior to the Anniversary Date of the Plan. Participant's entire account balance was self-directed by participant. Plan document (a Corbel doc) provides for valuation of the trust assets as of the Anniversary Date. Plan has a reasonable amount of time before it must distribute the participant's account balance. Plan document provides, as you would expect, that self-directed accounts will be separate from the plan trust and will not share in the income, gain, loss, etc... of the plan trust, but rather will have its own income, gain, loss, etc... Participant is saying that he is entitled to the value of his self-directed account as of the Anniversary Date and not as of the distribution date, i.e., up to 180 days after Anniversary Date. Thus, given the stock market's performance, the value as of the Anniversary Date is somewhat greater than the value now. Seems to me participant would get whatever's in the self-directed account at the date of distribution and not as of the Anniversary Date. Anyone have any comments or observations? Thanks for your input.

[Erik Read]

Another prime example of why Self-Directed Brokerage accounts shouldn't be used in qualified plans.

If the language of the document specifies that the SBA is not entitled to share in gains of the trust and will be considered seperate, it should also have a reference to the distribution value. The participant is entiled to his anniversary balance for assets outside the SBA, but only the amount at the time of distribution for the SBA - it's his account, his problem.

The only exception that I could see would be if upon termination his access to trade that account was turned off, so he had no control of the assets in that account, then you may have an issue.

This ought to be an interesting string of opinions