pooled accounts - separate for actives and terminees?

Plan has a pooled account. Would there be a concern with placing terminated participants into a separate pooled account that just contains say a Money Market fund?

Yes.

Yes, if the fiduciaries are making an investment decision they have to show the investment is prudent.  With interest rates so low many would argue a pure money market fund isn't prudent. 

There might be some discrimination issues but I would be more worried about the fiduciary duty issues.  

Just to play Devil's Advocate, what if the fiduciary made the decision that for terminated participants who have indicated that they will be taking an immediate distribution, their funds are segregated into something like a money market to protect them from short-term loss, under the theory that existing participants can recover from a short-term market loss, whereas the person taking a distribution won't have that "recovery" option?

21 minutes ago, Belgarath said:

Just to play Devil's Advocate, what if the fiduciary made the decision that for terminated participants who have indicated that they will be taking an immediate distribution, their funds are segregated into something like a money market to protect them from short-term loss, under the theory that existing participants can recover from a short-term market loss, whereas the person taking a distribution won't have that "recovery" option?

Not sure I would want to segregate pooled assets without an actual distribution request, and at that point I don't think it would be necessary. 

Not sure I would either. What about a plan termination situation? I'd be more inclined to believe such a decision might be valid in such a circumstance.

as usual, plan sponsor is looking for ways to encourage terminated participants to take their distributions.

14 minutes ago, TPApril said:

as usual, plan sponsor is looking for ways to encourage terminated participants to take their distributions.

If you do the documents, including SPDs and distributions forms, correctly I am pretty sure you can single out the terminated participants to pay some of the fees the actives don't pay.  So if the plan sponsor pays most of the fees and you help the client to get the documentation lined up the fees might encourage the terms to take their money.  

The IRS generally takes the position that a plan may not impose a “significant detriment” on a participant’s right to defer distribution of the participant's benefit under a plan under Section 411(a)(11).

In Revenue Ruling 96-47, the IRS concluded that the disparate treatment of active and former plan participants with respect to investment diversification rights was a
significant detriment. In that ruling, actives had full investment diversification rights while the inactives only had the right to invest in a money market fund. 

The situation in the original post seems analogous to the ruling and there may be a significant detriment. 

3 hours ago, Belgarath said:

Just to play Devil's Advocate, what if the fiduciary made the decision that for terminated participants who have indicated that they will be taking an immediate distribution, their funds are segregated into something like a money market to protect them from short-term loss, under the theory that existing participants can recover from a short-term market loss, whereas the person taking a distribution won't have that "recovery" option?

Are you doing a valuation of the trust every time someone wants to take a distribution?  Pooled accounts aren't subject to short-term fluctuations unless frequent valuations are done.

3 hours ago, Belgarath said:

Not sure I would either. What about a plan termination situation? I'd be more inclined to believe such a decision might be valid in such a circumstance.

I generally recommend the whole plan go to cash in a termination.  For one thing, you have a constantly moving target if you don't, and for another, everyone will remember the losses that might occur after the decision is made but no one will remember the gains.

13 hours ago, TPApril said:

Plan has a pooled account. Would there be a concern with placing terminated participants into a separate pooled account that just contains say a Money Market fund?

To answer the question you asked, the answer is YOU BET THERE IS A CONCERN.  Better answer: you can't do that.  

And just to offer a hint of a contrary opinion, I had a plan where my predecessor used to buy (single premium deferred) annuities for terms while everyone else was in a pooled account.  I expressed some concerns about that (on PIX for those who remember that) and someone way more experienced than me provided a cite that it was in fact ok - the general idea being that you'd look at nondiscrimination within each group (actives and non).  I might be able to find it if my life depended on it but it also might have been superseded by Revenue Ruling 96-47 cited above...

...but I agree with everyone else that it is, at best, a bad idea.  I've learned over the years to say "no you can't do that" even if there is some possibility that they can.  Explaining the pros and cons is counterproductive - it just leads to confusion when they want a straight answer.  Don't let their logical but bad impulses drive you to find a way to satisfy them.

(Sorry to lecture)

6 hours ago, Bird said:

And just to offer a hint of a contrary opinion, I had a plan where my predecessor used to buy (single premium deferred) annuities for terms while everyone else was in a pooled account.  I expressed some concerns about that (on PIX for those who remember that) and someone way more experienced than me provided a cite that it was in fact ok - the general idea being that you'd look at nondiscrimination within each group (actives and non).  I might be able to find it if my life depended on it but it also might have been superseded by Revenue Ruling 96-47 cited above...

...but I agree with everyone else that it is, at best, a bad idea.  I've learned over the years to say "no you can't do that" even if there is some possibility that they can.  Explaining the pros and cons is counterproductive - it just leads to confusion when they want a straight answer.  Don't let their logical but bad impulses drive you to find a way to satisfy them.

(Sorry to lecture)

Ed, don't say sorry; you are right on! That's what people need to hear from us "old timers" and I'm afraid we both qualify!

6 hours ago, Bird said:

And just to offer a hint of a contrary opinion, I had a plan where my predecessor used to buy (single premium deferred) annuities for terms while everyone else was in a pooled account.  I expressed some concerns about that (on PIX for those who remember that) and someone way more experienced than me provided a cite that it was in fact ok - the general idea being that you'd look at nondiscrimination within each group (actives and non).  I might be able to find it if my life depended on it but it also might have been superseded by Revenue Ruling 96-47 cited above...

...but I agree with everyone else that it is, at best, a bad idea.  I've learned over the years to say "no you can't do that" even if there is some possibility that they can.  Explaining the pros and cons is counterproductive - it just leads to confusion when they want a straight answer.  Don't let their logical but bad impulses drive you to find a way to satisfy them.

(Sorry to lecture)

And as to what your predecessor did, was there a commision paid on the annuity purchase.  And if the plan allows lump sum distributions, I don't see how the plan administrator/trustee could buy single premium deferred annuities, which probably had a 7 year declining surrender charge.  This whole thing is fraught with potential problems.  Just say NO. 

12 hours ago, Larry Starr said:

And as to what your predecessor did, was there a commision paid on the annuity purchase.  And if the plan allows lump sum distributions, I don't see how the plan administrator/trustee could buy single premium deferred annuities, which probably had a 7 year declining surrender charge.  This whole thing is fraught with potential problems.  Just say NO. 

Yes and yes.  It was something we stopped doing.