Time limit for paying out requested distribution

What with a current downturn in the market, how long can a plan sponsor wait to distribute assets, having received completed distribution forms, including 30-day waiver?  (for a pooled account)

7 minutes ago, TPApril said:

What with a current downturn in the market, how long can a plan sponsor wait to distribute assets, having received completed distribution forms, including 30-day waiver?  (for a pooled account)

What are they waiting on?  for the market to recover?  They cant delay a distribution in hopes that the investments will increase in value before they distribute.  They probably (depending on the document) could do a special valuation to take the losses into consideration, but it may be a little late for that.

They probably have 90 days to deny a claim, so presumably they could pay it within that timeframe.  As RBG notes, to what point?  The optics would be lousy to say "we're going to wait to see if the market recovers" and then have it go down even more, and then say "well the market is down so we're going to do a special val and make you participate in the losses."  

41 minutes ago, RatherBeGolfing said:

What are they waiting on?  for the market to recover?  They cant delay a distribution in hopes that the investments will increase in value before they distribute.  They probably (depending on the document) could do a special valuation to take the losses into consideration, but it may be a little late for that.

I agree, except I don't know why it may be a little late; this might call for an interim valuation which is what we always talk about when there are significant changes in the underlying assets. If they want to wait a few days and see if the market recovers (it might; it often does) that would be ok.  But at some near point in time they need to make their distributions and, if there is a significant change in the underlying value of the assets from the (probable) valuation date of 12/31, then an interim is possibly called for.

If they have already told the participant the amount they are due and the participant has signed and returned the form I would pay it out without delay.  The trustee knew the distribution was coming and could have planned for it by selling assets to cover it.  How do you think the participant will respnd when you ask them to suffer the consequences of the Trustees lack of attention?  As others have said, this could call for a special valuation - especially if the distribution represents a large percentage of the total assets of the plan that action could be defended and justified.  Otherwise pay him and spend some time making sure the PA and Trustee communicate.

On 2/27/2020 at 5:49 PM, JackS said:

If they have already told the participant the amount they are due and the participant has signed and returned the form I would pay it out without delay.  The trustee knew the distribution was coming and could have planned for it by selling assets to cover it.  How do you think the participant will respnd when you ask them to suffer the consequences of the Trustees lack of attention?  As others have said, this could call for a special valuation - especially if the distribution represents a large percentage of the total assets of the plan that action could be defended and justified.  Otherwise pay him and spend some time making sure the PA and Trustee communicate.

Our distribution forms package specifically has a dollar amount but also includes a sentence that the actual payout may change due to a more recent valuation.  That takes care of not having to redo forms when an interim valuation is done.  So, I am not persuaded that because they were told the amount and have returned the forms, they should be paid out "without delay".  Just, FWIW.

In my opinion, a classic problem for a pooled account plan.  If this was allocated, I would argue for payment without delay.  To wait and have the market go down more is to invite a lawsuit.  As several above have articulated, what is the point?    This plan should have an established "business" practice for acting on distribution paperwork and should follow it regardless of what the market is doing.

PNJ

2 hours ago, Patricia Neal Jensen said:

In my opinion, a classic problem for a pooled account plan.  If this was allocated, I would argue for payment without delay.  To wait and have the market go down more is to invite a lawsuit.  As several above have articulated, what is the point?    This plan should have an established "business" practice for acting on distribution paperwork and should follow it regardless of what the market is doing.

PNJ

I disagree.  It is perfectly rational for the plan admin/trustees to elect to have an interim valuation done in an environment of wildly changing daily values (which is not the norm).  As of today, we have started suggesting that interim vals be scheduled as of the end of March, with the hope that the market has somewhat stabilized by then. But if we do an interim val as of 3/31 and it takes a couple of days (the norm) and there is a major market change on April 2, we certainly might suggest that the number be updated again (maybe as of April 3).  I have no fear about "lawsuits". The language in the plan gives the full authority to the trustees to do this.  If there is a big loss  on April 2, they are acting as good fiduciaries in choosing to do another val  on 4/3; otherwise, they are taking money from the remaining participants and giving it to the ones who are no longer there.

Just some food for thought on this topic:

• If the market had gone up (rather than down) by 11% YTD in a pooled plan, would you do an interim valuation before the distribution to give the participant the benefit of the gains?  Does the plan have any standards in place about what level of market movement will mandate a special valuation?  My point is that I believe consistency is key here - don't make the EE suffer the loss if you wouldn't make them suffer the gain, and "discretion" is a 4-letter word in this context. 
• Moreover, just be clear, this is generally the a decision for the Plan Administrator, not a TPA/recordkeeper decision (unless the service provider is a fiduciary or wants to be one).
• I am not sure whether the OP's plan is daily or balance forward, but the other thing to consider is that the participant can generally take the proceeds and buy back into the down market.  They probably won't, I know, but it is an option they have.
• Lastly, as a former investment professional I can tell you that, IMHO, market timing is a fool's game. 

13 minutes ago, David Schultz said:

If the market had gone up (rather than down) by 11% YTD in a pooled plan, would you do an interim valuation before the distribution to give the participant the benefit of the gains?  

I have seen it happen both with major gains and major losses, but you make a good point. They are more common with losses, but still pretty rare (from what I have seen).

16 minutes ago, David Schultz said:

My point is that I believe consistency is key here - don't make the EE suffer the loss if you wouldn't make them suffer the gain, and "discretion" is a 4-letter word in this context. 

Most of the special valuations I have done, have had more than one factor.  For example, a major loss combined with an HCE requesting a very large in-service distribution, or a distribution of a large part of the pooled account, etc.

1 hour ago, Larry Starr said:

I disagree.  It is perfectly rational for the plan admin/trustees to elect to have an interim valuation done in an environment of wildly changing daily values (which is not the norm).  As of today, we have started suggesting that interim vals be scheduled as of the end of March, with the hope that the market has somewhat stabilized by then. But if we do an interim val as of 3/31 and it takes a couple of days (the norm) and there is a major market change on April 2, we certainly might suggest that the number be updated again (maybe as of April 3).  I have no fear about "lawsuits". The language in the plan gives the full authority to the trustees to do this.  If there is a big loss  on April 2, they are acting as good fiduciaries in choosing to do another val  on 4/3; otherwise, they are taking money from the remaining participants and giving it to the ones who are no longer there.

Just curious do you have a policy with both up and down market thresholds for when you would do the interim valuations?  

I can't cite anything (haven't really looked either) but it would seem odd to say you are protection participants if interim valuations happen only with sharp down turns   I mean up until the moment the person is paid the terminated person filling out the forms is a participant also.  

If you don't have both up side and down side thresholds it seems like heads I win and tails you lose policy.   To say the payments will shrink because of interim valuations on a sharp down turn but never go up on sharp up turns seems to hurt participants who are about to be paid at the expense of the ones staying behind.  I am not sure you can justify treating those two groups of participants that differently.  

Just an observation I would always be slow to do an interim valuation.   As today shows you can recoup a lot of the loss quickly.   It is just the nature of balance forward plans to have a lag between the valuation and the payment.  

I used to do a lot of balance forward PSP and once you explained to people over the years they benefited and got hurt by the lags most of them accepted them.  By that I mean most people who have been in the plan a long time got a benefit because the plan paid people out based on the last valuation and the market went up and they got extra gain and sometimes the market went down and they got extra loss.  It is likely that in the long run it was mostly a wash. 

23 hours ago, ESOP Guy said:

Just curious do you have a policy with both up and down market thresholds for when you would do the interim valuations?  

I can't cite anything (haven't really looked either) but it would seem odd to say you are protection participants if interim valuations happen only with sharp down turns   I mean up until the moment the person is paid the terminated person filling out the forms is a participant also.  

If you don't have both up side and down side thresholds it seems like heads I win and tails you lose policy.   To say the payments will shrink because of interim valuations on a sharp down turn but never go up on sharp up turns seems to hurt participants who are about to be paid at the expense of the ones staying behind.  I am not sure you can justify treating those two groups of participants that differently.  

WE have the same recommendation up or down.  If the market has a significant change (which is of course subjective) up or down, we talk about doing an interim.  If a substantial distribution is being made (which is also subjective), we talk about doing an interim.  It's always the trustees' choice.  And I don't think it has to be consistent; that is, there are no fixed rules (if it changes X%, we do an interim).  And, I think there is a legitimate argument to do interims more in a down market, because we are "protecting" the employees who are still continuing with the company, just like vesting benefits those who continue with the company.  FWIW.

23 hours ago, ESOP Guy said:

Just an observation I would always be slow to do an interim valuation.   As today shows you can recoup a lot of the loss quickly.   It is just the nature of balance forward plans to have a lag between the valuation and the payment.  

I used to do a lot of balance forward PSP and once you explained to people over the years they benefited and got hurt by the lags most of them accepted them.  By that I mean most people who have been in the plan a long time got a benefit because the plan paid people out based on the last valuation and the market went up and they got extra gain and sometimes the market went down and they got extra loss.  It is likely that in the long run it was mostly a wash. 

I doubt it is mostly a wash.  The market historically goes up just about 70% of the time and down about 30%, so not doing interims tends to benefit those who stay behind.

On 3/2/2020 at 3:24 PM, David Schultz said:

Just some food for thought on this topic:

• If the market had gone up (rather than down) by 11% YTD in a pooled plan, would you do an interim valuation before the distribution to give the participant the benefit of the gains?  Does the plan have any standards in place about what level of market movement will mandate a special valuation?  My point is that I believe consistency is key here - don't make the EE suffer the loss if you wouldn't make them suffer the gain, and "discretion" is a 4-letter word in this context. 
• Moreover, just be clear, this is generally the a decision for the Plan Administrator, not a TPA/recordkeeper decision (unless the service provider is a fiduciary or wants to be one).
• I am not sure whether the OP's plan is daily or balance forward, but the other thing to consider is that the participant can generally take the proceeds and buy back into the down market.  They probably won't, I know, but it is an option they have.
• Lastly, as a former investment professional I can tell you that, IMHO, market timing is a fool's game. 

David, see my other responses for some answers to your thoughts.   The first item is well covered I believe (that doesn't mean you will agree).

On your second point, it is absolutely the decision of the client and we require a written request to do an interim.

While I agree that the participant can buy back in, I don't think that's germaine to the issue. The question is does he get the bigger number or the smaller number from the plan, regardless of what he then does with the funds.

Market timing just does not work, ever!  We agree.  But your money in the S&P 500 index, set your alarm clock for 20 years, and go back to work!

What does the document say?  Is it something like "as soon as administratively feasible after the  request is made"?  If so, I don't think it's "administratively feasible" to wait to see what the market does. 

If the paperwork is in good order, and the Plan Administrator is in the position to request the funds from the Trustee, and the Trustee is in the position to liquidate the appropriate investments and remit the funds per the participant's instructions, then I don't think they can wait at all.