If you are a small business with a Profit Sharing Plan / defined
benefit plan set up through an independent benefit advisor firm,
someone may have counseled you to set up your investments at
Fidelity. They will create a “Non-prototype retirement account”
in the name of your Profit Sharing Plan trust. You can make
trades and do what you will (although as of late they refuse to let you
buy funds that have even potentially a short term sales charge, which
really drastically limits you) and it’s all for the big pool of
money. As a “non-prototype” plan, Fidelity washes their hands of
the actual record-keeping of who is owed what and how much is vested to
whom, etc. That’s why you’re paying your independent benefits
advisor all those fees each year, right?
When you discover that the costs invoved are so high as to cut
seriously into your returns, you’ll want to dissolve your profit
sharing plan and distribute the assets among the beneficiaries so each
can put his funds into a low cost IRA. Your advisor will have you
prepare corporate resolutions to that effect and tell you to distribute
the funds payable to the IRAs or 401ks of the beneficiaries, so that
they are qualified rollovers and so nobody has to withhold taxes for
the IRS.
Try telling that to Fidelity. If your experience is like mine,
they’ll have no idea, then check on things for you. They’ll come
back and say that they can make a check payable to the Trustees, to the
Plan, or they can do a qualified rollover to Fidelity. They will
swear up and down that they can’t send the money to a “contra FI”
(another bank). They’ll transfer you to “Retail Distribution,”
who will tell you that they can only pay out to the order of the
trustees, and that maybe you could have your trustees all sign the
check and then cash it at a bank, but that oh, yes, maybe, I suppose
you could get checkwriting privileges on the Fidelity account
itself. If you are unlucky, you might try to do this.
However, if things get more and more fubared on your phone call, you
might get transferred to “Retirements Department” where someone puts
you on hold two more times to research and then discovers that yes,
those things mentioned above (only payable to the trustees or via a
Fidelity rollover) are trueish but there is one magical thing to do
otherwise, that will without any fee, cause the funds to be sent to the
new banks and the new IRAs, and that is this.
Prepare a letter containing these magical 5 elements:
1. Direction to Fidelity to make a check payable to “Contra FI FBO
Employee Name Account” (e.g., “Vanguard Funds FBO John Smith Rollover
IRA”), in an exact dollar amount, and with the address to which to send
that check.
2. Certification by the trustees that the distribution is an “eligible rollover distribution.”
3. Statement that the trustees assume all responsibility for
record-keeping for the plan assets and for reporting the distribution
to the IRS for tax purposes.
4. Statement that the trustees indemnify and hold Fidelity harmless for
any liability with respect to processing the direct rollover.
5. Original signature with a bank’s signature guarantee from EACH of
the trustees (each must take the letter to the bank and sign in their
presence).
Send this mystical incantation, the specs of which are not available to phone reps or on the web site, to:
Fidelity Investments
Attn: Distribution Services
PO BOX 770001
Cincy OH 45277-0035
To their (sort of) credit, they had previously hinted to another
trustee that they needed a “distribution letter,” but did not mention
the 5 requirements, and when I called back to ask about it, had to put
me on hold 6 times and transfer me twice to get me the magical list of
things to do. My cell phone is now almost out of batteries after
nearly 40 minutes on the line with them. They were certainly
polite about the whole thing but it does seem a bit disingenuous of
them to keep insisting that we roll into Fidelity IRAs and “forgetting”
about this handy exception.
Of course, if you do this, you had better be damn sure that your p’s
are crossed and your q’s are dotted with respect to telling Uncle Sam
about the whole thing since Fidelity has now washed its hands of you.
Enjoy your new, rolled-over, low-overhead IRAs and 401ks!