Reasonable Segregation

We have a prospect who wants to implement a 401(k) plan as soon as possible and we are coming into the discussion late.  The investment vehicle will be a major daily valued platform and this provider cannot implement the platform before January 2021.  The provider has advised the client to go ahead and start deferring and keep the deferrals in their checking account until the platform is ready to receive contributions.  I assume they are playing on the reasonable segregation language but I am not terribly sure what they are thinking.  I don't see how this possibly would not be a prohibited transaction, not only is it outside the Safe Harbor, any deferrals in November would be outside the standard even if reasonable segregation/admin feasibility is applied.

I can't find this situation anywhere, but surely it has occurred before.  I just want to make sure I'm not missing something here.

Leaving it in the Plan Sponsor bank account wont work.

Setting up an account in the name of the Plan at the Sponsor's bank will work for reasoanbly segregating the assets from the Plan Sponsor into the Plan.

The question of whether the assets held in a back account for several weeks while the investment account for participant direction is setup is a fiduciary question about prudence.

Plan assets must be held in trust, so if they don't establish a trust with a trustee under the plan they are in violation of ERISA.

Push the vendor about the date given.  Explain that they just need to hold the contributions in an interest bearing account held in the name of the Trustee.  You will still have an allocation problem but the contributions will have left the sponsor's bank account and be in an interest bearing account included by the Trust.  It is a mistake to let the vendor tell you what to do!

17 hours ago, Luke Bailey said:

Plan assets must be held in trust, so if they don't establish a trust with a trustee under the plan they are in violation of ERISA.

And should be invested in something that is reasonable and appropriate for the situation.  I don't think a checking account set up for the plan is sufficient. If the first payroll was today it would be at least 2 months until assets move to the platform.

ERISA requires plan assets to be held in trust.  Good faith efforts to create a trust-like structure temporarily will not cut it.  

Thanks everyone.