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Securing an Investment Account(s) Provider

Guidant Financial Group, Inc. and your designated outside counsel have discussed with you the requirement of setting up investment/brokerage accounts for each participant of your Corporation’s 401(k) Plan. Now that you have completed the step of establishing your Corporation and 401(k) Plan checking accounts, we are providing the following information to tell you more about the investment account requirements and to assist you in getting started on this step.

What is the Investment Account Requirement?

The purpose of the investment/brokerage account is to hold the deferrals/contributions of each plan participant. Each plan participant then has the ability to direct how he/she wants monies invested. The plan participant is provided the opportunity to choose the stocks, bonds, mutual funds etc. that he/she wants to invest monies into.

When does the Investment Account Requirement come into effect?

There are three events that can trigger the investment account requirement: 1) upon enrollment of the first plan participant (this will likely be you) an investment account will need to be established so that the participant can begin investing deferral/contribution monies; 2) if all plan funds were not utilized in the QES transaction and your outside counsel has recommended that you roll remaining funds to an investment account as soon as possible and/or 3) if you have an employee (does not have to be eligible) who wishes to roll over qualified retirement funds into the company 401(k) plan.

Who can set up an investment account for me?

You, as the plan trustee, can set up investment accounts at an investment firm.

Where do I establish the Investment Account(s)?

Not all brokerage firms will establish the kind of accounts you need, therefore, it is very important that you inquire with any firm you have interest in, prior to completing any paperwork. Make sure that the firm you choose can and will sufficiently meet your needs and provide the services for what you are trying to accomplish.

We make available information for certain providers that offer the type of account you will need to establish. We have found these providers to be familiar with small plan accounts and they generally provide lower cost account solutions and simplified account setup. It is important to note that whichever investment account provider you choose that the provider will not require you to establish a new 401(k) Plan with them. We have already established the Plan for you!

What kind of accounts will need to be established?

What you are doing is creating investment accounts so that the contributions made by your plan participants can be invested in stocks, bonds, etc. by the participants. It is important to keep in mind that you are not establishing a retirement plan at your brokerage firm as we have already done that for you.

Most firms will establish a master investment account in the name of the 401(k) Plan and sub-participant accounts for each participant of the plan. The master account must be owned by the 401(k) Plan. Each sub-participant account should be established “for the benefit of” (F/B/O) the participant for whom the sub-participant account has been established.

Also, if the plan allows Roth Deferrals, you will need to ensure the Account Provider will open separate participant accounts as required by law.

What is a Master Account?

The main purpose of a Master Account is to funnel and track all plan participant deferrals/contributions. A Master Account is the main account that your participants contributions will be sent to. All 401(k) contributions by plan participants will go to this Master Account first, if only for a brief time, and then be disseminated to the appropriate accounts. This account is important as it will track all activity in the plan, which is important at the end of the year for your Recordkeeper. This can come in handy when Guidant, as the Recordkeeper of your Plan, requests information from you at the end of each plan year, in order to accomplish the required annual testing and reporting of your plan.

What is a Participant Account?

Participant Accounts are the individual accounts for all of your 401(k) participants. The main purpose of sub-participant accounts is that the IRS requires each participants contributions/deferrals to be maintained in a separate account. As Plan Trustee, you will also want to authorize your plan participants to direct the investment of their own retirement contributions from their own account.

Important Questions to Ask When Establishing Investment Accounts:

There are a number of very important questions that you are going to want to ask before you set up your investment accounts with a company. The following is a list to get you started:

I already have an existing 401(k) plan; do you have a product that allows for that?

You do not want to set up another 401(k) plan; Guidant has established one for you already. Make sure that the representative you speak to understands this and read all information carefully before signing anything.

Are these accounts self-directed?

You will want to make sure that the participants have complete control over the investments of their monies. You do not want to have any fiduciary responsibility over their investments as that would make you liable should the investments they choose not perform to the participants’ expectations.

Will my participants be able to do their own investing?

Again, this goes with the previous question. You want to make sure that you do not have to place the investment orders on behalf of your participants. They will need to be able to access their accounts on their own and make investment decisions without going through the trustee.

If they answered “no” to any of the preceding questions, then their accounts will not work for you and you will want to look into someone else. If they answered yes to the above questions, you will want to follow up with the following.

  • What, if anything, will you provide to my Recordkeeper?
  • Do you provide tracking sources of contributions, such as matching and profit sharing?
  • How frequently do you provide account statements?
  • Do you allow for zero balance starts? If so, how long can my account remain at a zero balance? Are there additional fees for having a zero balance?
  • Will I have daily access to my accounts?
  • What kind of access will I have to my accounts? What kind of access will my participants have to their accounts? (Internet, phone)
  • Are there limitations to day trading? How many times a day can I trade?
  • What are your requirements for distributions?
  • Do you setup separate participant accounts for Roth Contributions?
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