E*TRADE from Morgan Stanley Qualified Retirement Plan Service Agreement
The Employer identified in the [Application] or other account opening document (the “Application”) wishes to adopt a qualified retirement plan (the “Plan”) using a prototype retirement plan document (the “Plan Document”) made available by Morgan Stanley Smith Barney LLC (the “Custodian”) or an affiliate. The Employer, the Trustee (if applicable), and the Participant (if applicable) identified in the Application (collectively, the “Clients”) wish to establish a brokerage account(s) (the “Account”) to be used in conjunction with the Plan, and engage the Custodian to perform certain directed and ministerial processing and related services as more fully described herein. The Custodian is willing to provide such products and services in accordance with the terms and conditions of this agreement (the “Agreement”).
Accordingly, the Employer, the Trustee, (if applicable), the Participant (if applicable) and the Custodian agree as follows:
Article I — General
1.1 The Clients represent and warrant that the Plan is qualified under the Internal Revenue Code of 1986, as amended (the “Code”) with a related trust that is exempt from tax under Code section 501(a) (“Qualified Trust”) (or a custodial arrangement under Code section 401(f) that is treated as a Qualified Trust).
1.2 The Trustee or Employer, as applicable, has independently determined that the terms of the Application and this Agreement comply with the terms of the Plan Document for the Plan.
1.3 The Account will be linked to a non-transactional plan account. The plan account will be used for the Custodian’s administrative purposes only, such as maintaining plan information or linking related accounts maintained in connection with the Plan, and cannot be used for contributions, distributions, or to transact trades.
1.4 The Custodian and its affiliates will not serve as a Trustee, Plan Administrator, Named Fiduciary or Third-Party Administrator for the Plan. Neither the Custodian nor its affiliates shall have any duty, obligation or responsibility for the administration of the Plan or its qualification under the Internal Revenue Code except that the Custodian or an affiliate is responsible for maintaining the prototype Plan Document in a form acceptable to the Internal Revenue Service. The Employer’s continued use of the prototype Plan Document is contingent upon the Plan’s maintenance of at least one funded account with the Custodian. If and when the Plan no longer maintains a funded account for the Plan with the Custodian, the Employer’s participation in the prototype Plan Document program will automatically terminate, the Plan will no longer be covered by the prototype Plan Document made available to the Employer by the Custodian or an affiliate, the Employer will not be able to rely on the IRS Opinion Letter issued to the Custodian or an affiliate in connection with the prototype Plan Document, and the Employer will be responsible for any updates that are required to maintain the Plan Document and the Plan’s tax qualified status.
1.5 The Clients represent and warrant that they have received and reviewed a copy of Schedule A, Allocation of Roles and Responsibilities Under Your Retirement Plan, which generally outlines the role the Custodian does and does not perform with respect to the Plan and the Account, and agree that it accurately describes the Clients’ understanding of the Custodian’s general responsibilities.
1.6 Clients will notify the Custodian in writing of any amendment to any Plan Documents, any change in the composition of the Trustees, or any other event which could materially alter the statements in the Application or this Agreement, and the Custodian may rely on the continued validity of this information indefinitely, absent actual receipt of such written notice.
1.7 If there is more than one Trustee of the Plan or authorized representative of the Employer, as applicable, any action in connection with the Account requires the authorization of only one Trustee or one authorized representative, as applicable.
1.8 The Employer or Trustee, as applicable, hereby covenant that if they sign and deliver to the Custodian any document which effectuates a delegation of investment management, such parties are authorized under the Plan Document and/or applicable law to delegate investment management, and that the Custodian shall have no independent duty to verify their authority to delegate investment management.
1.9 Each person authorized in this Agreement to act on behalf of the Plan represents and warrants that all instructions given with respect to the Account are within the authorities given by, or pursuant to, the Plan Document and agrees to jointly and severally indemnify the Custodian and its affiliates, employees and agents from any and all liabilities that may be incurred by virtue of acting on said instructions. Such parties shall be under no obligation to inquire into the purpose of any instruction given including but not limited to the delivery of securities or other property or the payment of money either to an authorized representative of the Plan or any third party and shall not be bound to see to the application or disposition of said securities, other property or money. In the event of the death or removal of an authorized representative, the remaining authorized representatives shall immediately give the Custodian written notice thereof and the Custodian may, before or after receiving such notice, take such proceedings, require such documents, retain such portion of the Account and/or restrict transactions in the Account as the Custodian may deem advisable to protect against any real or perceived liabilities. The Plan shall remain liable to the Custodian for any debt or loss in the Account resulting from transactions initiated prior to the Custodian’s receipt of written notice of such death or removal including, but not limited to, losses or debts resulting from such transactions.
Article II — Contributions
2.1 The Custodian is not obligated to accept (and may reject or refuse) any contribution to the Account. The Custodian may, in accordance with its policies and procedures then in effect, accept:
a) Contributions (including salary deferral contributions) made by the employer in accordance with the Plan;
b) Rollover contributions consisting of (i) cash and/or other property distributed from an eligible retirement plan as defined under Code Section 402(c)(8)(B), provided that such property is of a nature and in a form acceptable to the Custodian; or (ii) the cash proceeds of the sale of property distributed from such eligible retirement plan, in accordance with Code Sections 402(c), 402(e)(6), 403(a)(4), 403(b)(8), 403(b)(10), 408(d)(3), or 457(e)(16), if the distribution is received from a eligible retirement plan other than an individual retirement plan defined in Code Section 7701(a)(37);
c) Trustee-to-trustee transfers, provided such property being transferred is of a nature and in a form acceptable to the Custodian;
d) Any other contributions specifically authorized by the Employer or Trustee, as applicable.
Article III — Investments
3.1 Unless otherwise agreed to in writing by the Custodian, the Employer, Trustee, Participant or Beneficiary, as applicable, shall direct the investments in the Account.
a) The Account is a Participant-Directed Account. The Participant (or, in the event of the Participant’s death, the Beneficiary) will have the authority to trade in the Account and the Trustee or Employer, as applicable, will also have the authority to trade in the Account as the authorized representative of the Plan. The Trustee or Employer, as applicable, is responsible for ensuring that all account transaction and investment instructions provided are in accordance with the Plan Documents.
b) Such investments may be made in
i. securities and other investments that are available for acquisition through the Custodian in its regular course of business and permitted by the Custodian for investment under the Account according to its policies and procedures then in effect; and
ii. other investments the Custodian in its sole discretion agrees to hold according to its policies and procedures then in effect.
c) The Custodian’s decision to permit the holding of any investment in the Account shall not constitute approval of the investment merits of the investment nor a judgment as to the prudence, advisability or appropriateness of the investment.
d) The Custodian reserves the absolute right to revoke its decision to permit the holding in the Account of any investment at any time and for any reason and may resign as Custodian with respect to such investment in accordance with Article VIII or distribute in-kind the investment, and the Custodian shall have no liability for any loss, damage or expense suffered or incurred by the Clients by reason of the revocation of the Custodian’s decision.
3.2 All assets of the Account shall be registered in the name of the Custodian or of a nominee (the same nominee may be used with respect to assets of other investors whether or not held under agreements similar to this one or in any fiduciary capacity whatsoever), provided, however, that the Custodian may hold any security in bearer form or by or through a central clearing corporation maintained by institutions active in the national securities markets.
3.3 As further described in the Summary of the Bank Deposit Program and the Bank Deposit Disclosure Statement applicable to the Account, the Clients authorize and direct the deposit or investment of cash balances in the Account (including, but not limited to, uninvested cash, dividends and distributions on shares of mutual funds or other investments held in the Account that are paid in cash) in
a) deposit accounts with Morgan Stanley Bank, N.A., Morgan Stanley Private Bank, National Association, and/or any other banking affiliate of the Custodian that bear a reasonable rate of interest;
b) any other sweep investment vehicle specified in the Application or an agreement applicable to the sweep investment vehicle for the Account, which by this reference are incorporated herein; or
c) any sweep investment vehicle otherwise made available to the Account and disclosed to the Clients.
The Custodian may amend this Section 3.3 or change the sweep investment vehicle available to the Account, at any time with notice to the Clients.
3.4 Clients further acknowledge and agree that any uninvested cash held in the Account may be deposited or invested, as directed by an authorized party, in deposit accounts with Morgan Stanley Bank, N.A. or Morgan Stanley Private Bank, National Association or any other banking affiliate of the Custodian in connection with any savings deposit program offered by the Custodian (“Savings Program”) and as further described in the disclosure statement for such Savings Program.
3.5 The investment of the Plan’s assets in registered investment companies, common or collective trusts, pooled separate accounts or any other entities qualifying as “look-through investment vehicles” under U.S. Department of Labor Regulations section 2550.404c-1(e)(1), for which an affiliate of the Custodian serves as investment advisor, investment manager, distributor or otherwise sponsors or provides services (“Affiliated Funds”) is specifically authorized. You acknowledge that the Custodian and/or its affiliates may receive compensation from Affiliated Funds, including compensation for transfer agency and dividend agency services, and that such entities may also receive compensation from mutual funds (both affiliated and nonaffiliated funds) in which Plan assets are invested for certain services rendered to such investment funds.
3.6 To the extent available, the Clients may enroll the Account in an advisory service or program as provided under a separate agreement.
Article IV — Distributions and Transfers from the Account
4.1 In General. The Employer or Trustee, as applicable, may direct a distribution or transfer of all or a portion of the Account at any time and from time to time in such form and in such manner as is acceptable to the Custodian. In accordance with Article V, the Beneficiary (as defined in Article V) may in the event of the Participant’s death direct a distribution or transfer of all or a portion of the Beneficiary’s share of the Account in such form and in such manner as is acceptable to the Custodian. A distribution or transfer shall be made only upon notification to the Custodian pursuant to this Section 4.1 and the Custodian shall act upon such direction within a reasonable period to the extent possible.
a) The Custodian is not required to make any distribution or transfer from this Account until directed on a form provided by, and delivered to, the Custodian for that purpose or in such other medium as shall be acceptable to the Custodian. Such directions shall include, but not be limited to, an identification of the Account, the amount of cash or specific securities or other property to be distributed or transferred, the order in which securities or other property held in the Account shall be liquidated, if necessary, the nature or purpose of the distribution or transfer, the party to whom the distribution or transfer shall be made, whether income taxes are to be withheld, if necessary, and such other information and representations as the Custodian may require in its sole discretion.
b) The Custodian may condition any distribution or transfer upon receipt of any and all applications, certificates, tax waivers, signature guarantees and other documents (including proof of any legal representative’s authority) deemed necessary or advisable by the Custodian, in the Custodian’s sole judgment.
c) The Custodian may reasonably rely on the directions and representations from the Employer or Trustee, as applicable, or, in the event of the Participant’s death, the Beneficiary, that are made in connection with the distribution or transfer, including (but not limited to) instructions concerning the amount or timing of the distribution or transfer, or representations concerning the reason for the distribution or transfer.
d) The Custodian shall be entitled to withhold from delivery and to reserve such property as it deems reasonably necessary for the payment of all of its unpaid fees and other expenses and/or for the payment of any other liability or charge against the Account (including, but not limited to, taxes).
Article V — Beneficiary Designation and Distribution upon Death of Participant
5.1 The Employer is solely responsible for reviewing and confirming that the provisions of this Article are consistent with the terms of the Plan Document and, by executing the Application, the Employer represents and warrants that the provisions of this Article are consistent with the terms of the Plan. Further, the Employer is solely responsible for informing the Custodian of any changes to the terms of the Plan that may impact the provisions of this Article.
5.2 The Employer directs Custodian to collect and maintain, on behalf of the Plan, beneficiary designations submitted by the Participant in a form and manner acceptable to the Employer as described herein. Accordingly, the Employer directs the Custodian to collect and maintain beneficiary designations submitted by the Participant in accordance with the following:
a) The Participant may designate one or more primary or contingent beneficiaries (collectively, “Beneficiary” or “Beneficiaries”) to receive all or a specified portion of the Account in the event of the Participant’s death, using the E*TRADE from Morgan Stanley Designation of Beneficiary for Qualified Retirement Plan Form (or successor form) or the electronic equivalent of such form (the “Designation of Beneficiary Form”).
b) The Participant may designate an individual, trust, the Participant’s estate, charitable organization or other entity as a Beneficiary of the Account. The Participant must identify the Beneficiary with sufficient specificity and in an acceptable manner. Designations that include “per will” or “per trust” or substantially similar language will be considered invalid.
c) If the Participant is married and wishes to designate a primary beneficiary who is not their spouse, their spouse must consent to such designation on the Designation of Beneficiary Form, and the spouse’s consent must acknowledge the effect of such designation and be witnessed by a notary public or plan representative. If the Participant designates a primary beneficiary while they are not married, but in the future the Participant becomes married, the Participant must complete a new Designation of Beneficiary Form to continue to designate a primary beneficiary who is not their spouse, and their spouse must consent to such designation on the Designation of Beneficiary Form in accordance with this paragraph.
d) No Designation of Beneficiary Form shall be effective until received by the Custodian in acceptable form. The Participant may change or revoke the Designation of Beneficiary Form at any time by completing and delivering a new Designation of Beneficiary Form in acceptable form, but such change or revocation shall not be effective until received by the Custodian. The last dated and signed Designation of Beneficiary Form actually received by the Custodian in an acceptable form during the lifetime of the Participant will govern.
e) In the case of multiple Beneficiaries, the Participant must identify the percentage of the Account each Beneficiary is entitled to receive. The percentages for all of the primary beneficiaries must total 100%, and the percentage for all of the contingent beneficiaries must total 100%. If the Participant fails to identify the percentage each Beneficiary is entitled to receive, each Beneficiary shall be entitled to an equal share of the Account.
5.3 If the Participant dies before the entire Account has been paid to them, the Employer directs the Custodian to pay the remaining balance of the Account in accordance with the Designation of Beneficiary Form to the surviving Beneficiary(ies) designated by the Participant, subject to any conditions specified herein or in the Designation of Beneficiary Form. If no Beneficiary designated by the Participant on the Designation of Beneficiary Form survives the Participant, the Employer directs the Custodian to pay the remaining balance of the Account to the Participant’s spouse, or where no Spouse exists, to the Participant’s estate.
5.4 Unless the Beneficiaries jointly agree to an alternative division of the specific securities and other property held in the Account, the Employer directs the Custodian to pay each Beneficiary a proportionate share of each security and other property held in this Account based on the percentage of the Account each Beneficiary is entitled to receive. Securities or other property held in the Account may be liquidated if necessary to adhere to the percentage allocated to each Beneficiary and the Custodian is authorized (but not obligated) to liquidate such securities or other positions without the consent of any or all of the beneficiaries. If the Account assets cannot be split evenly among the Beneficiaries according to the percentage the Participant allocated to each Beneficiary, the Employer directs the Custodian to pay the Beneficiary listed first on the applicable Designation of Beneficiary form a slightly higher percentage.
5.5 If, at the time of the Participant’s Death, the Beneficiary is a minor or incapacitated adult who is represented by a duly appointed guardian, conservator or custodian (“Beneficiary’s Nominee”), the Employer authorizes the Custodian to distribute such Beneficiary’s percentage of the Account to the Beneficiary’s Nominee and shall be fully released thereby. If no Beneficiary’s Nominee has been properly appointed, or if the Beneficiary’s Nominee is unable or refuses to accept delivery of the Beneficiary’s percentage of the Account, the Custodian may, but shall have no obligation to, seek appointment of a substitute Beneficiary’s Nominee for the sole purpose of accepting delivery of the Account assets, and shall be fully released thereby, offsetting the reasonable expenses of doing so against the Account assets.
Article VI — Power, Duties and Obligations of Custodian
6.1 No Investment Discretion. The Custodian shall have no discretionary authority or control with respect to the investments of the Account assets, and is merely authorized to acquire and hold the particular investments specified by the Employer, Trustee, Participant or Beneficiary, as applicable, unless the Custodian agrees to such authority or control in writing. The Custodian is not, however, obligated to act upon each and every investment direction and may, within its normal and customary practices, decline to act upon a given investment direction. Notwithstanding any other provision herein to the contrary, the Custodian may (but is not obligated to) refuse to follow instructions which it reasonably believes will result in a Prohibited Transaction under the Code or ERISA.
6.2 Investment Powers. The Custodian shall have the following powers and authority with respect to the Account:
a) To carry out all investment directions for this Account and make any purchases and sales of investments for, and on behalf of, the Account;
b) To hold any securities or other investments acquired hereunder in the name of the Custodian without qualification or description, in the name of any nominee or by or through a central clearing corporation or depository;
c) To invest and reinvest the assets of the Account without regard to whether such investment is authorized by the laws of any jurisdiction for fiduciary investments;
d) To exercise, buy or sell covered listed options, conversion privileges or rights to subscribe for additional securities and to make payments therefore;
e) To consent to or participate in dissolutions, reorganizations, consolidations, mergers, sales, leases, mortgages, transfers or other changes affecting securities held by the Custodian;
f) To make, execute and deliver as Custodian any and all contracts, waivers, releases or other instruments in writing necessary or proper for the exercise of any of its powers or responsibilities under this Agreement or applicable law;
g) To grant options to purchase securities held by the Custodian or to repurchase options previously granted with respect to securities held by the Custodian;
h) To exercise any rights of a shareholder (including voting rights) with respect to any securities held in the Account only in accordance with the instructions of, or a written agreement entered into with, the Employer, Trustee or Participant, as applicable, pursuant to any applicable rules of the Securities and Exchange Commission and the national exchanges of which the Custodian or an affiliate is a member; and
i) To invest and reinvest the assets of the Account in deposits of an affiliate or affiliates which bear a reasonable rate of interest.
6.3 Administrative Powers.
a) The Custodian shall have the power to take such actions as are reasonable and necessary to carry out its duties under this Agreement.
b) The Custodian shall be under no duty to take any action other than as specified in the Agreement unless the Employer, Trustee or Participant, as applicable, furnishes the Custodian with written instructions, agrees to indemnify the Custodian from any claims arising out of such instructions and such instructions are specifically agreed to in writing by an authorized representative of the Custodian.
c) The Custodian may consult with and employ suitable agents and advisors, including but not limited to legal counsel, accountants and tax advisors, with respect to its duties under the Agreement and applicable law, and may compensate such agents and advisors for expenses attendant to those responsibilities.
d) The Custodian may mail notices to the Clients to the last known address of such recipient. Any notice, communication or disclosure to the recipient regarding this Agreement shall be considered given upon mailing to the recipient (by any class of mail) at the recipient’s last address appearing on the records of the Custodian. Any notice, communication or disclosure given by the Custodian to recipient may be (i) Provided separately, or (ii) Included with any account statement mailed or sent (either by hard copy or by electronic media, if permitted by applicable law).
Notwithstanding the foregoing, the Custodian reserves the right to deliver any notice, communication or disclosure to the Clients by electronic medium and such recipient shall be deemed to have the effective ability to access the electronic medium used to provide the notice, communication, or disclosure under Section 1.401(a)-21(c)(2) of the Income Tax Regulations or any successor regulation, unless the recipient requests a paper copy of the applicable notice, communication or disclosure within 30 days after the Custodian mails a written paper notice to the recipient, in accordance with the first two sentences of this Section 6.3(d), regarding the availability of the notice, communication or disclosure.
e) The Custodian may pay any fees, expenses, liabilities, charges, or taxes as are owed by the Account as an expense of the Account.
f) The Custodian may liquidate assets held in the Account to make distributions or transfers or pay fees, expenses, liabilities, charges or taxes assessed against, or imposed on, the Account (including Plan expenses allocated to the Account). If the Custodian must liquidate assets and the Employer, Trustee, Participant, or Beneficiary, as applicable, fails to instruct the Custodian as to the liquidation of such assets, the Employer or Trustee, as applicable, hereby authorizes and directs the Custodian to liquidate assets in the order disclosed to the Employer or Trustee, as applicable, in advance of such liquidation or in the following order to the extent such assets are held in the Account:
i. Amounts that may be held in the Bank Deposit Program sweep vehicle or any other sweep vehicle.
ii. Shares held in a money market mutual funds.
iii. Publicly traded securities in such order as we deem reasonable.
iv. Other investments in such order as we deem reasonable.
v. Limited Partnership interests.
6.4 Tax Reporting and Withholding.
a) Information Tax Reporting. The Custodian shall perform federal and state tax information reporting on Internal Revenue Service (“IRS”) Form 1099-R (or, if applicable, IRS Form 1042-S) and, to the extent applicable, the state equivalent form for distributions (including deemed distributions) from the Account that are paid (or deemed paid) to, or on behalf of, the Participant or the Beneficiary. The Employer, Trustee, Participant or Beneficiary, as applicable, shall furnish the Custodian with such information and documents as the Custodian may require in its sole discretion to perform its obligations under this paragraph. Clients acknowledge and agree that (i) the outstanding balance of a loan from the Account to the Participant (“Participant Loan”) may be treated as a deemed distribution that is reportable by the Custodian as a distribution if the Participant Loan is not repaid in accordance with applicable requirements, and (ii) while the Custodian may be required to report the outstanding balance of a Participant Loan as a deemed distribution, the Custodian is not responsible for administering Participant Loans.
b) Federal and State Income Tax Withholding. The Custodian shall (i) process any applicable federal and state income tax withholding for distributions (including deemed distributions) from the Account that are paid (or deemed paid) to, or on behalf of, the Participant or the Beneficiary, (ii) remit any applicable federal income tax withholding to the IRS and any applicable state income tax withholding to the applicable state taxing authority, and (iii) file any required withholding tax return(s) (e.g., IRS Form 945) with the IRS and the applicable state taxing authority. The Employer, Trustee, Participant or Beneficiary, as applicable, shall furnish the Custodian with such information and documents as the Custodian may require in its sole discretion to perform its obligations under this paragraph.
c) Unrelated Business Taxable Income (“UBTI”). The Clients understand and agree that if the Account is established and maintained for a Plan that is exempt from the trust requirement under ERISA, does not have a trustee appointed, and is using a qualifying custodial arrangement under Section 401(f) of the Internal Revenue Code (in lieu of a trust), then (i) the Clients are obligated to notify the Custodian if an investment in the Account generates UBTI (including, but not limited to, the name of the investment and the amount of the UBTI), (ii) the Clients hereby authorize and direct the Custodian to make such filings and pay taxes with respect to UBTI as the Custodian deems appropriate (with the information received from, or made available by, the Clients, the issuer of the investment generating the UBTI or other sources), and to liquidate assets of the Account to pay any such taxes as it is an expense of the Account and must be paid from assets of the Account, (iii) to the extent the Custodian prepares any related filings (e.g., Form 990-T), the Custodian reserves the right to charge the Employer, Trustee or Account for the cost of such preparation, and for any penalties, interest, losses, or expenses relating to such taxes and filings; and (iv) the Custodian is not required to make any estimated tax payments on behalf of the Account, unless the Employer or Trustee, as applicable, instructs the Custodian to make such estimated tax payments in writing in a form acceptable to the Custodian.
d) Clients acknowledge and agree that the Custodian’s obligations under this Section 6.4 are limited to the Account(s) the Clients maintain for the Plan under this Agreement with the Custodian. Clients further acknowledge and agree that, except as otherwise provided in this Section 6.4, the Custodian is not responsible for any tax returns, reports or any other filings with any federal, state or other governmental entity, including (but not limited to) IRS/DOL Form 5500.
6.5 Right to Request Judicial Assistance. Notwithstanding any language to the contrary in any applicable agreement with the Clients regarding arbitration, the Custodian shall have the right at any time to apply to a court of competent jurisdiction for judicial settlement of the Account or for determination of any questions or construction that may arise or for instructions. The only necessary party defendant to any such action shall be the Employer, Trustee, Participant or Beneficiary, as applicable, but the Custodian may join any other person or persons as a party defendant. The costs, including attorney’s fees, of any such proceeding shall be charged to the Account as an administrative expense under Article X.
6.6 Scope of Custodian’s Duties. The Custodian shall be responsible only for carrying out the obligations and responsibilities that are specifically set forth in this Agreement and no others.
a) The Custodian shall have no obligation or responsibility to determine whether contributions (including, but not limited to, rollover contributions) comply with the Plan Document, the Code, regulations, IRS guidance or any other applicable law.
b) The Custodian shall have no obligation or responsibility to determine whether a distribution or transfer comply with the Plan Document, the Code, regulations, IRS guidance or any other applicable law, to initiate the making, or to see to the application, of any distribution or transfer from the Account, to determine the amount that must be distributed from the Account at any time, or to calculate the amount of any distribution or transfer.
c) The Custodian shall not make any investments or dispose of any investments held in the Account except upon the direction of the Employer, Trustee, Participant or Beneficiary, as applicable, or in accordance with Sections 5.4 and 6.3(f), unless otherwise agreed to in writing by the Custodian.
d) The Custodian shall have no obligation or responsibility to question the Employer, Trustee, Participant or Beneficiary, as applicable, investment instructions, to review any securities or other property held in the Account, or to make suggestions or recommendations to the Employer, Trustee or Participant, as applicable, with respect to the investment, retention or disposition of any assets held in the Account, unless otherwise agreed to in writing by the Custodian.
e) The Custodian shall have no obligation or responsibility to prosecute or defend any legal action with respect to the Account, unless the Custodian is fully indemnified to its satisfaction and agrees to do so in a writing executed by an authorized representative of the Custodian.
f) The Custodian shall have no obligation or responsibility to vote any shares of stock or take any other action, grant any consents or waivers, exercise any conversion privileges, or take any action permitted to be taken with respect to any asset in the Account, unless otherwise agreed to in writing by the Custodian.
g) The Custodian has no obligation or responsibility to notify the Employer, Trustee, Participant or Beneficiary, as applicable, as to their obligations or responsibilities under the Plan Document, the Code, regulations, IRS guidance or any other applicable law.
h) Except as provided 6.4, the Custodian is not responsible for filing any reports or providing any disclosures to governmental agencies or plan participants (e.g., Form 5500, Summary Plan Description, etc.).
6.7 Scope of Custodian’s Liability. The Custodian shall not be liable to Clients for any loss, liability, cost, or expense of any kind incurred by the Clients as a result of any act or omission by the Custodian in performing its responsibilities under this Agreement, except as a result of gross negligence or willful misconduct by the Custodian.
a) The Custodian may rely, and shall not be liable when acting in good faith, upon any written, oral or electronic order from the Clients or any notice, request, consent, certificate, form or other instrument believed to be genuine and to have been properly executed, and the Custodian need not investigate or inquire as to any statement contained in such document but may accept it as true and accurate. If any such directions are not received as required or, if received, are unclear in the sole opinion of the Custodian, compliance with the instructions may be delayed, without liability for any loss caused by any delay, pending receipt of instructions or clarification that the Custodian considers appropriate.
b) The Custodian shall not be liable for the eligibility or deductibility of any contribution (including, but not limited to, rollover contributions) or the purpose or appropriateness of any distribution or transfer as these matters are the sole responsibility of the Employer, Trustee or Participant, as applicable. The Custodian shall not be liable for any loss which may result from the investment of any asset in the Account. The Custodian shall not be liable for any act or omission of any agent (whether constituting gross negligence or willful misconduct) to whom the Custodian has delegated any of its responsibilities under this Agreement.
c) The Custodian shall not be liable for any tax, penalty or interest imposed upon the Clients if the contributions to the Account (including, but not limited to, rollover contributions), distributions, transfers or investments fail to satisfy the applicable requirements of the Code, regulations, IRS guidance or any other applicable law.
d) The Custodian shall not be liable for any tax, penalty or interest imposed upon the Account as a result of any investment held in the Account or, if applicable, any tax return filed by the Custodian on behalf of the Account.
e) The Custodian shall not be liable for the cash or other assets removed from the Account at the direction of the Employer, Trustee, Participant or Beneficiary, as applicable, or a court or government agency of competent jurisdiction.
f) The Custodian shall not be liable for any loss, tax or penalty incurred by the Employer, Trustee, Participant or Beneficiary, as applicable, due to the Custodian’s failure to comply with any instruction for distribution or transfer until the Custodian has received all information and documents which it, in its sole judgment, requires.
g) The Custodian shall not be liable for the acts or omissions of any successor custodian, even if such successor custodian has been appointed by the Custodian.
6.8 Right to Adjudicate Claims of Multiple Parties.
If the Custodian receives conflicting instructions or any conflicting claims to the Account (including any claim related to, or inconsistent with, the beneficiary designation), the Custodian is authorized, in its discretion and without incurring liability due to fluctuating market conditions or otherwise to do any one or more of the following: (a) select which instructions to follow or claims to honor and which to disregard; (b) suspend all activity in the Account, (c) refuse to buy, sell or trade any security or commodity, and refuse to disburse any funds, securities or other property, except upon receiving written instructions signed by all applicable parties (e.g., all Beneficiaries or claimants); (d) close the Account and send any and all securities, funds or other property to address of record for the Plan, Employer, Trustee, Participant, or Beneficiary, as applicable, in accordance with Section 9.2; or (e) take action pursuant to Section 6.5 above including, but not limited to, file an interpleader action in any court with proper jurisdiction.
Article VII — Duties of the Clients or Beneficiary
7.1 The Employer, Trustee, Participant or Beneficiary, as applicable, shall fulfill any obligations imposed on them by the Code, regulations, IRS guidance or other applicable law. To the extent the Custodian performs such obligations at the request of the Employer, Trustee, Participant or Beneficiary, the Employer, Trustee, Participant or Beneficiary, as applicable, agrees to pay the Custodian such reasonable fee as the Custodian may charge for its services. Such fee shall be included with the fees charged pursuant to Article X.
a) The Employer, Trustee, Participant or Beneficiary, as applicable, shall have the sole responsibility to determine whether the acquisition, holding or disposition of any asset in the Account complies with any limitations applicable to investments by the Plan. Any investment or other instructions Employer, Trustee, Participant or Beneficiary, as applicable, gives to the Custodian will comply with such limitations and will not constitute a prohibited transaction under ERISA or the Code, as applicable.
b) The Employer or Trustee, as applicable, is required to ensure that the contributions to this Account (including, but not limited to, rollover contributions) are made in accordance with the terms of the Plan Document, the applicable requirements of the Code, regulations, IRS guidance and any other applicable law.
c) The Employer or Trustee, as applicable, is required to ensure that any distribution or transfer from this Account is made in accordance with the Plan Document, the Code, regulation, IRS guidance or other applicable law.
d) Notwithstanding the transfer of the assets of the Account to a successor custodian or the distribution of the assets from the Account, the Clients or the Beneficiary, as applicable, shall remain liable for payment in full of all of the fees and other administrative charges and any expenses then due and payable or which become due and payable as a result of, upon or following any transfer or distribution of the assets of the Account as described in Article X.
7.2 Unless otherwise agreed to in writing by the Custodian, the Employer, Trustee, Participant or Beneficiary, as applicable, shall be responsible for directing the investment in the Account. Clients acknowledge and understand that (a) when the Custodian, its affiliates and its employees provide “investment advice” as defined under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or Code Section 4975 (collectively, the “Retirement Laws”) regarding an individual retirement account (“IRA”), a Roth IRA, a Coverdell education savings account, a plan covered by ERISA or a plan described in section 4975(e)(1)(A) of the Code (collectively, “Retirement Account”), we are a “fiduciary” under the Retirement Laws; and (b) when we provide investment education, takes orders on an unsolicited basis or otherwise do not provide “investment advice”, we will not be considered a “fiduciary” under the Retirement Laws. For more information regarding our role with respect to a Retirement Account, please visit www.morganstanley.com/disclosures/dol.
7.3 Furnishing Information. The Employer, Trustee, Participant or Beneficiary, as applicable, shall furnish the Custodian with such information and documents as the Custodian may reasonably require. If Employer, Trustee, Participant or Beneficiary, as applicable, fails to furnish such information or documents the Custodian may, at its sole discretion, terminate the Account and distribute the assets to the Employer, Trustee, Participant or Beneficiary, as applicable, in accordance with Section 9.2.
7.4 Indemnification of Custodian. The Employer, Trustee, Participant or Beneficiary, as applicable, shall the Custodian, it officers, directors, employees, affiliates, subsidiaries, predecessors, successors, and assigns from any and all losses, claims, demands, causes of action, damages, liabilities, costs, or expenses (including attorneys’ fees) arising from, or related to, this Custodial Agreement.
Article VIII — Resignation or Removal of Custodian
8.1 The Custodian may resign with respect to all or part of the Account at any time by giving at least 30 days written notice to the Employer or Trustee, as applicable. Upon its resignation, the Custodian may, but is not required to, appoint a qualifying successor Custodian. The appointment of the successor Custodian shall become effective at the time the resigning Custodian ceases to act. The Employer or Trustee, as applicable, may remove the Custodian at any time by giving at least 30 days written notice to the Custodian. The Employer or Trustee, as applicable, must identify the successor Custodian in the notice to the Custodian. The notice period may be waived by the party entitled to the notice.
8.2 Successor Custodian or Trustee.
a) If the Custodian, upon its resignation, appoints a successor custodian, the Employer or Trustee, as applicable, shall either accept the Custodian’s appointment of a successor or appoint a successor Custodian. The Employer or Trustee, as applicable, shall be deemed to have consented to, and accepted, the Custodian’s appointed successor if the Employer or Trustee, as applicable, does not appoint a successor Custodian on or before the effective date of the Custodian’s resignation (as set forth in the notice described in Section 8.1 above). The successor shall have all rights, powers, privileges, liabilities and duties of the Custodian. Upon acceptance of appointment by the successor, the Custodian shall assign, transfer and deliver to the successor all assets and liabilities of the Account (or the assets and liabilities of the Account with respect to which the Custodian resigned).
b) If the Custodian resigns without appointing a successor custodian, the Employer or Trustee, as applicable, shall appoint a successor within the period specified in the Custodian’s notice of resignation. The Employer’s or Trustee’s, as applicable, failure to appoint a successor custodian within the required time shall result in the termination of the Account and distribution of the assets in the Account in accordance with Section 9.2.
c) If the Employer or Trustee, as applicable, removes the Custodian and fails to appoint a successor custodian, the Account shall terminate and the assets in the Account shall be distributed to the Employer, Trustee, Participant or Beneficiary, as applicable, in accordance with Section 9.2.
d) If a successor custodian appointed by the Employer, Trustee, or Custodian, as applicable, fails or refuses to accept any asset in the Account transferred by the Custodian, the Custodian may terminate the Account and distribute the assets to the Employer, Trustee, Participant or Beneficiary, as applicable, in accordance with Section 9.2.
e) The Custodian is authorized to reserve such funds or other property as it determines is advisable for the payment of all expenses, fees, compensation, and costs, or for the payment of any actual or potential taxes and other liabilities of the Account or the Custodian. Any balance of such reserve remaining after the payment of all such items is to be paid to the successor Custodian or, if the assets were distributed to the Employer, Trustee, Participant or Beneficiary, as applicable, in accordance with Section 9.2.
Article IX — Amendment and Termination
9.1 Amendment or Termination. The Custodian, or any successor custodian, may amend this Agreement or related agreements, including the Application, or terminate the Account at any time provided that notice of such amendment or termination is provided to the Employer, Trustee, Participant or Beneficiary, as applicable, in writing. The Employer, Trustee, Participant or Beneficiary, as applicable, shall be deemed to have consented to any such amendment unless within the period specified in the Custodian’s notice, the Employer, Trustee, Participant or Beneficiary, as applicable, terminates (or transfers) the Account. The termination of the Account shall not terminate the Employer, Trustee, Participant or Beneficiary, as applicable, obligations, representations, or agreements nor the Custodian’s rights or remedies, including the Employer, Trustee, Participant or Beneficiary, as applicable, obligation covered in Section 7.4 to indemnify the Custodian. The Custodian’s obligations under this Agreement shall terminate upon termination of this Account. Upon delivery or distribution of any assets in the Account to, or upon order of, the Employer, Trustee, Participant or Beneficiary, as applicable, the Custodian shall be relieved from all further liability under this Custodial Agreement.
9.2 Distribution on Termination. If the Account is terminated (in whole or part) for any reason by the Custodian, the Custodian shall distribute the balance of the Account (or the portion of the Account that has been terminated) to a successor custodian or trustee appointed by the Custodian, Employer or Trustee, as applicable, or, if no such successor is appointed, in a lump sum directly to the Employer, Trustee, Participant or Beneficiary, as applicable, provided, however, that the Custodian may sell assets to satisfy any tax withholding obligations of the Custodian (in accordance with Section 6.3(f)) and exclude from any such distribution an amount deemed reasonably necessary by the Custodian for the payment of all unpaid fees, expenses, taxes, charges and any other liabilities of the Account.
Article X — Fees and Expenses
10.1 Compensation of the Custodian. The Custodian shall be entitled to reasonable fees and compensation for its services in maintaining the Account, implementing or completing securities or other transactions on behalf of the Account and for any other relevant services, including (but not limited to) Broker-dealer or investment advisory services, provided to the Clients in connection with the Account, along with reimbursement for all reasonable expenses incurred in connection with the Account. The Custodian shall notify the Client in writing of its fees and of any changes in fees. The Client and the Custodian agree that the Custodian has the absolute right to amend or revise its fees as set forth in Pricing and Rates available at us.etrade.com/what-we-offer/pricing-and-rates, and no amendment or revision or substitution of its fees shall be deemed an amendment of this Agreement.
10.2 Payment of Fees and Expenses. The Employer or Trustee, as applicable, is responsible for paying any account, custodial, or related administrative charges the Custodian might reasonably require and disclose in connection with the process of opening or maintaining the Account. Any brokerage fees, commissions and related expenses shall be paid in the customary manner. In the event an Account is terminated or transferred, a termination or transfer fee may be due and payable on the date of the termination or transfer. Reimbursement for expenses shall be due and payable upon demand. The Custodian reserves the right, in its sole discretion, to elect to discount or waive certain fees for certain customers. To effect the payment of fees from the Account, the Custodian may liquidate assets in accordance with Section 6.3(f). The Employer or Trustee, as applicable, represents and warrants that the Plan Document allows for expenses to be paid from Plan assets. If it is subsequently determined that such payments are improperly paid from Plan assets, Employer or Trustee, as applicable, agrees to indemnify the Custodian for any and all amounts expended to correct such payments.
10.3 Deduction of Fees and Expenses. Notwithstanding any other provisions of this Agreement, the Account shall be subject to the reasonable fees, charges and expenses of the Custodian, as described in the Agreement and any other fee schedules and documentation, as may be amended from time to time. The Custodian may deduct from and charge against the Account all reasonable fees and expenses incurred in connection with the Account, provided, however, the Employer or Trustee, as applicable, may elect to pay certain fees and expenses directly to the Custodian, but if not paid timely, the Custodian will deduct such fees and expenses from the Account. To effect the payment of fees and expenses from the Account, the Custodian may liquidate assets held in the IRA in accordance with Section 6.3(f).
10.4 Float. Clients understand and agree that the Custodian may retain, as compensation for the performance of services, the Account’s proportionate share of any interest earned on aggregate cash balances held by the Custodian with respect to “assets awaiting investment or other processing.” This amount, known as “float,” is earned by us through investment in overnight cash deposits and highly liquid securities (e.g., U.S. government obligations), with the amount of such earnings retained by us, due to the short-term nature of the investments, being generally at the prevailing overnight interest rate applicable to these investments. This rate averaged approximately one hundred sixty-nine points during the 12 months ended December 31, 2022, but please note that due to market fluctuations the rate will change – please contact us for more current information. “Assets awaiting investment or other processing” for these purposes includes, to the degree applicable: (i) new deposits to the Account, including interest and dividends; (ii) any uninvested assets held by the Account caused by an instruction to purchase or sell securities (which may, after the period described below, be automatically swept into a sweep vehicle); (iii) assets held in the Plan Account (where applicable); and (iv) withdrawals from the Account, to the degree checkwriting privileges may be offered to the Plan. With respect to assets awaiting investment or other processing: (i) where such assets are received by the Custodian on a day on which the New York Stock Exchange and/or the Federal Reserve Banks are open (“Business Day”), float shall generally be earned by us through the end of that Business Day (known as the “Sweep Date”), with the Account credited interest/dividends in such funds as of the next Business Day following the Sweep Date; or (ii) where such assets are received on a Business Day that is not followed by another Business Day, or on a day which is not a Business Day, float shall generally be earned by us through the end of the next Business Day. Delays in providing investment instruction could result in increased compensation in the form of float. Please note, however, that uninvested cash typically does not await sweep for more than one day and the Custodian does not invest, and therefore does not earn interest on, all uninvested client cash. Where the Custodian facilitates a distribution from the Account, the Custodian earns float on money set aside for payment of outstanding but uncashed checks, generally from the date on the face of the checks until the date that either the recipient cashes the check, or the check is cancelled and the underlying funds are returned to the Account. For example: If $10,000 is deposited into an Account and those funds are awaiting investment (i.e., the funds are not swept into the Bank Deposit Program, a money market fund or otherwise invested), the Custodian may earn interest or “float” on the funds (as further described above). Assuming the interest rate is 1.69%, the Custodian would earn approximately 47 cents per day ($10,000*1.69% / 360 = $0.47).
10.5 Payment for Order Flow and other Routing Arrangements and Use of Electronic Communication Networks and Alternative Trading Systems.
The Custodian is committed to providing the best execution for customers’ orders. In furtherance of this commitment, the Custodian considers several factors, including price, the available liquidity pool, execution speed, transaction costs, service and opportunities for price improvement in determining where to route customer orders for execution.
Industry regulations require that we disclose whether we receive compensation for directing client orders for execution to various dealers, national securities exchanges, alternative trading systems (“ATSs”), including electronic communications networks (“ECNs”), and other market centers. This compensation is commonly referred to as “payment for order flow.”
The Custodian, either directly or indirectly, may route customer equity orders to national securities exchanges, ATSs, including ECNs, and other market centers, including its affiliate Morgan Stanley & Co. LLC (“Morgan Stanley & Co.”). Certain market centers offer cash credits for orders that provide liquidity to their books and charge explicit fees for orders that extract liquidity from their books (and certain market centers invert this practice). From time to time, the amount of credits that the Custodian receives from one or more such market centers may exceed the amount the Custodian is charged. The Custodian receives the benefit of these credits, either directly or indirectly, and such payments constitute payment for order flow. The Custodian may also receive incremental pricing benefits from exchanges and/or ECNs if certain volume thresholds are met.
In addition, Morgan Stanley & Co. may route certain customer orders (including orders for fixed income securities, preferred shares and convertible bonds) to Morgan Stanley & Co. on behalf of the Custodian. These arrangements between Morgan Stanley & Co. and the Custodian are intended to facilitate trade execution for our customers, with apportionment of resulting expenses and revenue from the trading activity between the Custodian and Morgan Stanley & Co. Morgan Stanley & Co. participates in Exchange-sponsored listed option payment for order flow programs and accepts payment for order flow for certain listed option orders. In the course of providing liquidity, Morgan Stanley & Co. may preference certain option orders to Morgan Stanley & Co.’s options market maker, or third-party market makers for execution. The Custodian and/or its affiliates have ownership interests in and/or Board seats on ECNs or other ATSs. In certain instances, the Custodian and/or its affiliates may be deemed to control one or more of such ECNs or ATSs based on the level of such ownership interests and whether the Custodian and/or its affiliates are represented on the Board of such ECNs or ATSs. The Custodian and/or its affiliates may from time to time, directly or indirectly, effect client trades through ECNs or other ATSs in which the Custodian and/or its affiliates have or may acquire an interest or Board seat, and the Custodian and/or its affiliates may thereby receive an indirect economic benefit based upon their ownership in the ECNs or other ATSs. The Custodian and/or its affiliates will, directly or indirectly, execute through an ECN or other ATS in which it has an interest only in situations where the Custodian and/or its affiliates, or the broker-dealer through whom they are accessing the ECN or ATS, reasonably believes such transaction will be in the best interest of its clients and the requirements of applicable law have been satisfied.
As noted above, the Custodian, subject at all times to its obligations to obtain best execution for its customers’ orders, will route certain customer order flow to Morgan Stanley & Co. Furthermore, as of December 2022, the Custodian and/or its affiliates own an interest in certain ECNs or ATSs, including: (i) National Stock Exchange of India; (ii) Miami International Holdings Inc.; (iii) Equilend; (iv) Euroclear Holding SA/NV; (v) LCH Group Holdings Limited (Clearing); (vi) CME; (vii) ICE US Holding Company, LP; (viii) OTCDeriv Limited; (ix) TIFFE – Tokyo Financial Futures Exchange; (x) iSWAP Limited; (xi) EOS Precious Metals Limited; (xii) Creditderiv Limited; (xiii) FXGlobalClear; (xiv) Japan Securities Clearing Corporation; (xv) CME/CBOT/NYMEX; (xvi) Dubai Mercantile Exchange; (xvii) Intercontinental Exchange; (xviii) Bombay Stock Exchange; (xix) Japan Securities Depository Center Inc.; (xx) MEMX Holdings LLC; (xxi) LCH.Clearnet Group LTD; (xxii) The Depository Trust and Clearing Corporation; (xxiii) Copeland Markets LLC; (xxiv) Yensai.com Co., Ltd; and (xxv) Octaura Holdings LLC.
Clients understand and acknowledge that the Custodian may effect trades on behalf of client accounts through ECNs, ATSs and similar execution systems and trading venues (collectively, “Trading Systems”), including Trading Systems in which the Custodian and/or its affiliates may have a direct or indirect ownership interest. In addition, Clients understand and agree that, subject at all times to its obligations to obtain best execution for its customers’ orders, the Custodian will route certain customer order flow to its affiliates, and that, the Custodian and/or its affiliates own an interest in certain ECNs or ATSs as listed above. The ECNs and ATSs on which the Custodian trades for client accounts and in which the Custodian and/or its affiliates own interests may change from time to time. Clients may contact the Custodian for an up-to-date list of ECNs and ATSs in which the Custodian and/or its affiliates own interests. Clients hereby authorize the Custodian to effect trades on behalf of your account(s) through all such Trading Systems, affiliated and unaffiliated, and all such other Trading Systems through which the Custodian may determine to trade in the future. Clients further acknowledge that the Application shall constitute the requisite authorization and notice of the Custodian’s intent to trade through all such Trading Systems, pursuant to ERISA Section 408(b)(16) and/or Code Section 4975(d)(19).
Notwithstanding the foregoing, the Custodian regularly and rigorously monitors the quality of the executions provided by all market centers to which customer orders are routed to ensure those market centers are providing the best execution reasonably available under the circumstances.
Additional information regarding these disclosures will be provided upon written request and certain order routing information is available online at www.morganstanley.com/wealth-disclosures/disclosures.
On request of a customer, the Custodian will disclose to such customer the identity of the venue to which such customer’s orders were routed for execution in the six months prior to the request, whether the orders were directed orders or non-directed orders, and the time of the transactions, if any, that resulted from such orders as well as other customer specific order routing and execution information that is required by SEC Rule 606(b)(3).
Article XI — Miscellaneous
11.1 In the event the Custodian is merged with an unaffiliated legal entity where the Custodian is not the surviving entity, or if the Custodian is acquired (in whole or in part) by another unaffiliated legal entity who acquires the custodial retirement business of the Custodian, such entity shall become Custodian, under this document, so long as (a) the terms of such operative documents providing for the assumption of the role of custodian by the acquisition or merger specify the assumption of the custodianship and (b) such successor or acquiring entity satisfies the requirements under the Code and applicable Federal and state law for serving as a custodian. In the event of an internal corporate reorganization involving the Custodian and its parent company or affiliates where the Custodian is not a surviving entity but one or more of its affiliates are, any such successor entity shall, if otherwise satisfying the requirements under the Code and applicable Federal and state law, automatically become the Custodian as of the date of such reorganization. In the event that the Custodian shall merge, be acquired, or be reorganized and the foregoing provision of this Section 11.1 does not provide a successor custodian to the Custodian, the Employer or Trustee, as applicable, shall appoint a successor Custodian in accordance with Section 8.2.
11.2 Notwithstanding anything contained herein to the contrary, the Employer, Trustee, Participant or Beneficiary, as applicable, shall not engage in any prohibited transaction within the meaning of Code Section 4975 or ERISA with respect to the Account.
11.4 Governing Law. Except for the statute of limitations applicable to claims, this Agreement is governed by the law of the state of New York and the provisions of the Code or any successor tax statutes, without giving effect to principles of conflict laws. If any provision of this Agreement becomes inconsistent with any applicable current or future law, regulation or rule, that provision will be deemed changed to conform to any such law, regulation or rule and all other provisions of this Agreement will remain in effect and unchanged. The Custodian’s failure to enforce at any time or for any period of time any provision of this Agreement shall not operate as a waiver of such provision or the Custodian’s right thereafter to enforce each and every such provision.
11.5 If the Custodian is a party to any other agreement with the Employer, Trustee, Participant or Beneficiary, as applicable, nothing contained therein shall be construed to diminish, reduce or eliminate any rights which the Custodian may have under this Agreement nor shall anything in this Agreement be construed to diminish, reduce or eliminate any obligations of the Employer, Trustee, Participant or Beneficiary, as applicable, under any such other agreement.
11.6 The Custodian has advised the Clients that if the they have any questions as to the treatment of any transaction involving the Account under ERISA (if applicable), the Code and the Income Tax Regulations, the application of any State or local income tax laws, or the effect of any other tax, estate, inheritance, property or other laws, the they should obtain and rely upon the advice of their own personal tax advisor or attorney.
Allocation of Roles and Responsibilities Under Your Retirement Plan
Many different parties have important roles to play in the administration of a retirement plan (including plans qualified under the Internal Revenue Code and/or subject to the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”) or other statutes). In order to administer the Plan in a prudent and effective manner in compliance with applicable laws, it is important to understand the roles that outside providers may play and the role that we play as broker and service provider.
Further, completion of an Adoption Agreement for a Prototype Qualified Retirement Plan – Defined Contribution Basic Plan Document (“Prototype Plan Document”) requires consideration of complex tax and legal issues. Employers should consult with or should obtain the advice of legal counsel and/or a tax advisor before executing an Adoption Agreement. Once executed, the Adoption Agreement is a legal document with significant tax and legal ramifications and the failure to properly complete the Adoption Agreement or administer the Plan may result in disqualification of the Plan. Neither the Custodian nor any of its agents or affiliates assume any responsibility for the completion of, and operation of the Plan established under, the prototype plan documentation that the Custodian makes available.
The following is a description of the duties that various parties may undertake with respect to the Plan; whether such parties actually perform the described duties will depend upon decisions made by the Employer/Plan Sponsor.
Employer/Plan Sponsor Responsibilities
The Plan Sponsor (which is the “Employer” who adopts Prototype Plan Document):
- Selects, adopts and amends Plan documents and employee communications;
- Makes contributions to the Plan and remits employee contributions within the deadlines, if applicable, established by the Department of Labor and the Internal Revenue Service;
- Selects other “fiduciaries” and service providers for the Plan where duties are not delegated to particular individuals under the terms of the Plan; and
- Selects Trustees or other responsible parties to hold or custody the Plan’s assets.
Plan Administrator Responsibilities
One or more of the duties of the Plan Administrator can be performed by the Plan Sponsor, or by a separately appointed individual or committee. Please note that under the terms of the Prototype Plan Document, the Employer is the Plan Administrator unless it appropriately designates another entity. Typically the Plan Administrator:
- Determines eligibility of employees to participate in the Plan;
- Communicates Plan amendments, modifications, notices and important Plan information to employees and participants;
- Enrolls participants and provides enrollment materials to participants;
- Conducts information sessions on Plan provisions and investment options for employees;
- Compiles and forwards employee data to service providers for the Plan;
- Submits information regarding employee contributions and investment selection to service providers;
- Makes determinations as to the amount of benefits payable to participants;
- Provides information regarding available distribution options (e.g., lump sum distribution, rollover, transfer to a successor plan);
- Provides distribution forms to participants/beneficiaries;
- Approves hardship withdrawals and other Plan distributions where available under the Plan;
- Approves Plan loans to participants where available under the Plan and monitors the repayment of these loans;
- Completes or processes necessary forms for various participant/beneficiary requests and participant-directed transactions;
- Reviews and approves all requests for distributions under Qualified Domestic Relations Orders (“QDROs”);
- Reviews, determines legitimacy of, and approves claims for benefits;
- Establishes various policies related to the operation of the Plan, and maintains Plan records;
- Files Form 5500 reports and other required information with government agencies, such as the Department of Labor, the Internal Revenue Service or the Pension Benefit Guaranty Corporation. The Custodian and its affiliates will not file Form 5500 on behalf of any plan; and
- Provides tax reporting with respect to distributions from the Plan (tax reporting and other duties listed above may also be performed by the Plan Trustee or another designated party), except in situations where the Custodian may take on such responsibilities (as described under Role of Morgan Stanley).
The Plan Administrator’s duties are specifically outlined in the Prototype Plan Document.
Named Fiduciary/Investment Fiduciary Responsibilities
The “Named Fiduciary” for investment purposes (who may be the Employer/Plan Sponsor, Trustee or other party appointed under the Plan) is one or more persons who are tasked with the authority to invest Plan assets or hire investment advisors and managers who will invest Plan assets. If the Plan is subject to ERISA, the Named Fiduciary for investment purposes typically:
- Determines the investment policy for the Plan;
- Develops and maintains a written Investment Policy Statement, revising the policy when appropriate;
- Selects Plan investments, investment advisors and/or managers;
- Reviews investment performance of Plan assets on a regular basis and adjusts the Plan’s investment portfolio to conform to the guidelines of the Investment Policy Statement;
- May provide investment education and/or the delivery of investment materials (e.g., prospectuses and investment performance information) to participants who are allowed to self-direct the investment of their accounts (such as in Internal Revenue Code section 401(k) plans);
- Reviews, approves and discloses all expenses, fees and compensation paid to Plan advisors, service providers and investment funds from Plan assets in accordance with the Plan’s terms and applicable law (including ERISA);
- Selects other service providers who will perform administrative, recordkeeping and other Plan investment-related services; and
- Ensures that the Plan complies with all applicable fiduciary provisions of ERISA, including compliance with self-directed account rules under ERISA section 404(c), if applicable.
The Plan Trustee, either an individual or an institution such as a bank or trust company with trust powers under applicable law, has responsibilities under the Plan that are distinct from the duties of the Plan Sponsor, Plan Administrator and Named Fiduciary.
The Plan Trustee:
- Holds legal title to all Plan assets;
- If acting as a directed Trustee, purchases or sells investments pursuant to direction of the Named Fiduciary, participants or investment managers (as applicable);
- If acting as a discretionary Trustee, is empowered to purchase or sell investments without direction;
- Distributes Plan benefits, often as directed by the Plan Administrator or Named Fiduciary;
- Makes payments to service providers and other persons from Plan assets, often as directed by the Plan Administrator or Named Fiduciary;
- Provides appropriate certifications and may provide tax reporting with respect to distributions from the Plan, except in situations where the Custodian may take on such responsibilities (as described under Role of the Custodian); and
- Provides periodic Trust reports and annual audited Trust statements to the Plan Sponsor when appropriate.
Third-Party Administrator (“TPA”)/ Consultants
Certain types of retirement plans, such as Internal Revenue Code section 401(k) plans and other defined contribution plans, often utilize the specialized services of TPAs or consultants who may:
- Process enrollments, contributions, distributions and loans to participant account records as authorized by the Plan Administrator;
- Perform various tests for compliance under Internal Revenue Code qualification provisions (including maximum deferral percentage, nondiscrimination, coverage, top-heavy, minimum participation);
- Assist the Plan Administrator in providing communications, enrollment and other instructional materials to Plan participants; and
- Prepare reports and forms required by the IRS and the DOL for the Plan Administrator.
Role of the Custodian
In assisting the Employer/Plan Sponsor and the other designated parties who have responsibilities under the Plan, the Custodian can provide specific services that are separate from the duties of the Named Fiduciary, Plan Administrator, Trustee and TPA. If requested by the Employer/Plan Sponsor or other appropriate party, the Custodian can provide one or more of the following services:
- Act as broker-dealer to the Plan in providing a wide range of potential investment options for the Plan;
- Offer a “prototype” plan documents for Employer/Plan Sponsors to use that comply with the various qualification requirements of the Internal Revenue Code, and ensure that amendments required to maintain the Plan document are provided to the Plan Sponsor when necessary;
- Offer brokerage accounts to the Plan and its participants that enable Trustees, participants and other authorized individuals to direct the investment of Plan account balances;
- Offer advisory programs;
- Employee education services;
- Assist in enrollment of participants; and/or
- Assist Plan fiduciaries in evaluating Plan investments.
The Custodian and its affiliates will not serve as Trustee, Plan Administrator, Named Fiduciary or TPA for the Plan, though the Custodian does provide tax reporting and withholding services for certain Plans.
Except as otherwise provided in the Agreement, the Custodian is not responsible for ensuring that contributions are made to the Plan, or providing various reports and disclosures to governmental agencies or participants (e.g., Form 5500, Summary Plan Description). Furthermore, the Custodian will not be responsible for ensuring that fiduciaries and other persons handling funds or property of a plan are appropriately bonded as required under ERISA.