We have a 401K / Profit Sharing Plan that uses the Corbel Defined Contribution Prototype Plan document. The plan uses the American Funds Record Keeper Direct platform and all the plan assets are held at American Funds. Participant directed investments are permitted.

Now, one of the owners wants to have his balance at American Funds transferred to an account he has set up at Merrill Lynch by way of a trustee-to-trustee transfer and have all future contributions made on his behalf sent to this account rather than American Funds like everyone elses. The account he set up at Merrill Lynch is titled in the name of the Plan F/B/O the owner.

Is this okay? Would a plan usually have to be amended to allow for this? It seems to me that if all participants are not given the same access to a seperate account at Merrill Lynch then it would be discriminatory. I would think this type of request would be fairly common and I was just looking for some guidance on how to handle it.

Thanks for any help!

Are all the other participants being offered the opportunity to transfer to Merrill Lynch?

Its a benfefits, rights and features problem. Plan cannot limit certain investment options to HCEs. However if participant is eligible for inservice withdrawal, account balance can be rolled over to an IRA at ML.

So what if we allow all participants the same option to transfer their American Funds accounts to a self directed brokerage account at Merrill Lynch. Would that take care of the benefits, rights and features problem? Any other issues?

Anyone else have plans where doctors or other owners want to have their own account set up with their own broker? I have inherited a few plans where the employees accounts are on a platform like Hartford or American Funds and the owners have self directed brokerage accounts at Merrill or Wells Fargo so I'm trying to see if these plans are in compliance.

Thanks for the help!

That should do it, if they really do have that option - I would create some kind of form where they elect which account they want to use. The "other issues" that arise are the extra hassle of creating the form and making sure participants make an election, and then keeping track of things on multiple platforms, and costs associated with that.

It might be worth checking whether the ML account has a minimum balance requirement that would leave some (many?) participants with no real option to transfer to ML.

Although it might be, I don't suspect this is really a trustee to trustee transfer. ML will probably just be a custodian of the funds, and the doc (or whoever it is) will remain the Plan's trustee.

These types of plans are actually quite common. The document must include an option allowing for self-directed brokerage account to be an option available to all members. You can apply a opening account balance minimum, such as $1,000, provided that it would not be deemed discriminatory under "RBF Rules".

We normally have 3 "points of notice" for members on this feature. First, include in the SPD. Second, provide a special notice when a person has his/her first contribution going to the plan. Finally, send an annual notice with an election that allows using this feature.

We have found that most employees will not choose this option since it lacks the structure you would have with the "mutual funds account". You are now saying to the person that he/she can invest in almost anything that can be bought, with exception to include puts and calls. That can cause many people to be overwhelmed by the number of options. This may not be preferable to the broad menu of set funds typically offerred.

With this type of plan I believe it is prudent to let the person know about the downsides, as well as the upsides. This, I believe, is common sense. You should always try to let people have as much information as possible about what that choice may mean. Having too many choices can be bad.

Whether these types of plans are a good choice could be debated for hours. My position is that they exist, and do require extra effort. If the Sponsor is not prepared to handle the potential extra problems created, they should not use this trust structure. Conversely, if they Sponsor is ready to handle the special issues created, and this type of plan is desired, why not?

I think the trustee-trustee transfer term here is just the term used in-house to do the movement of the money from American funds to ML.

The transaction at American would be coded a trustee-trustee transfer, so the program wouldn't automatically kick out a 1099-R form.

Gotcha. HAL really does control everything we do after all . . .

A reference some of these young whippersnappers may not get.

Is this before or after he is asked to open the pod bay door?

I was a young whippersnapper when I first saw the movie. Does that count?

Thanks everyone for the responses! I guess I would fall into the "young whippersnappers" category because I'm not sure I recognize "Hal." What movie?

I'm sorry, Dave. I can't tell you that.

You are hereby charged with renting, and watching, the movie "2001, A Space Odyssey".

Most investment platforms include a self directed brokerage (SDB) option if Plan assets are $1 million or more. If the owner(s) wants an SDB account, he/she should use the option that is embedded in the investment platform they chose for their participants. When I make this suggestion to my business owner clients, the objection that I hear is "my broker/financial advisor who will be handling investments in my brokerage account once I move it from the Plan's current platform is not willing to manage assets in an account outside of his firm."

That's the financial advisor's problem and it's typically because the financial advisor is not able (due to license or broker/dealer constraints) or willing to collect his/her fee via invoice to the Plan (perhaps he doesn't want to admit his real commission rate?). I tell my business owner client to establish SDB on the current investment platform and give his account "log in" information to his financial advisor to manage his account. Work out the payment arrangements however you wish.

Quite simply put, if your employees have all of their retirement savings at ING, Hartford or any other platform (that you as the Trustee and fiduciary chose) when that investment company is downgraded or rocked by some financial scandal, how will it look to your employees that your own money was not invested there? Can we say "Class Action Suit" boys and girls?

I think it's worth noting that most SDB options within a platform have fees that are absolutely horrific, at least the ones I've looked at, and I would not consider using one a viable option. That said, I agree that you don't want to have the employees on a platform and the owner doing something else - there are ways to make it "ok" but it never does look right, IMO.

I think the trustee-trustee transfer term here is just the term used in-house to do the movement of the money from American funds to ML.

I'm working with a plan that has this option and needs to establish a written policy/procedure to distribute to employees about the rules for the SDB accounts. (This is part of their self correction for someone who took a distribution from his account without a distributable event.) Can anyone recommend language for such a document?