Individual Brokerage Accounts
Most 401(k) programs limit investments to a limited selection of mutual funds. In the majority of cases, this may be an appropriate choice.
However, some sponsors of small 401(k) plans would prefer the investment flexibility of a separate brokerage account for each participant. Benetech’s FBO 401(k) program provides this option.
For this arrangement, each participant with an account balance has a brokerage account. This account is still in the name of the plan, but the account is “For the Benefit Of” the participant (thus, “FBO”).
The plan sponsor and trustees still retain normal fiduciary responsibilities for the plan and investment accounts. However, within this framework, participants have the opportunity to direct investments within the brokerage account.
Setup and ongoing operation of FBO accounts
The basic ongoing operation of the FBO 401(k) program is similar to that of the more traditional options, with only slight differences.
Each pay period, the employer transmits to the financial advisor the company’s participant payroll data (e.g., salary deferrals and, if needed, loan repayments, matching contributions, etc.) as well as the assets associated with this data.
The financial advisor then facilitates the deposit of these assets according to the payroll data, and the investment of these assets according to the directions of the participants.
The financial advisor’s firm will provide monthly statements for the FBO accounts. Along with year-end plan reports, Benetech will provide the employer with annual participant statements consolidating relevant plan account information for that year.
When setting up the FBO accounts, be sure to request that copies of all monthly statements be sent to Benetech. We will need these monthly statements, as well as payroll deposit information, to perform the required annual trust accounting for plan reporting purposes.