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Constructive receipt for daily non-qualified plans


Guest sodbuster

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Guest sodbuster

I am looking for some guidance regarding "contructive receipt" rules in the context of a participant's ability to direct his invesments in the daily envionment for a non-qualified plan. Can anyone point me to some regs., rulings, procedures, etc. Example: If a participant is allowed to change his investmets daily, would he/she be in constructive receipt of that money? What about weekly? Monthly? Thanks for your help.

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Guest wmacdonald

Most nonqualified plans today, allow participants to change there investment elections. Changing daily, monthly or weekly should not cause the participant to be in constrctive receipt of his or her money. There are other design issues you need to consider when giving the plan participant lots of flexability. You can get some good data on this topic from our survey at http://www.crgworld.com.

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Guest sodbuster

wmacdonald,

Thanks for your response. I was reading some of the articles on your website. In light of my initial question, can you clarify the exerpt from one your articles below? i.e. What is the "investment control" theory of taxation?

"Also, with the increased prevalence among plans that allow executives to pick and choose investment options, the plan designer must be cautious when drafting the plan. These investments must be "hypothetical" to avoid the so-called "investment control" theory of taxation (if you start to act like you own something, shouldn’t you be taxed as if you own it?). Further, the right to choose between investment options must be carefully designed to avoid causing the plans to be considered a "funded" plan for purposes of ERISA."

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  • 2 weeks later...
Guest Jeff V

Hey, Sod, I think I can answer the last question.

The theory basically says that if you are controlling the investment returns, isn't that sort of like constructive receipt?

The way our plan gets around it is by using the hypothetical investments (we call them "benchmark investments.")

In our unfunded plan, the participants are given the opportunity to select how their account "would be" invested. It's just like a participant directed account, except the investment are only used as a benchmark, for recordkeeping purposes. So, they get the returns associated with the funds we offer, but the account is never actually invested in the funds - the company takes the hit as a general liability (or, if the funds suffer losses, the company hypothetically gains by a reduction in the liability.)

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