Review Defined Benefit Plan Asset Liquidity Before Valuation

Before an annual defined benefit plan valuation, prepare an asset packet that shows what the plan owns, the date and source of each value, and which assets can supply cash for expected plan payments. A correct total on a brokerage statement does not answer every valuation or liquidity question. Identify missing evidence before sending the packet to the actuary.

Our actuary deliverables guide explains the wider professional handoff. This article focuses on asset identity, valuation evidence, and payment liquidity, rather than repeating the trust contribution rollforward.

Confirm the accounts belong in the packet

List the plan's account titles, custodians, account identifiers, statement dates, and authorized contacts. Use masked identifiers in the meeting summary. Keep personal retirement accounts, operating bank accounts, and other plans clearly separated. If an account title or ownership record is unclear, ask the administrator to resolve it before combining balances.

The IRS retirement records guidance includes trust investment statements and financial records among the documents sponsors should retain. Build the inventory from actual statements and supporting documents. A dashboard screenshot can help locate an account, but preserve the underlying dated evidence.

Ask the actuary which reporting and valuation dates are needed. Save later statements separately when they clarify a transaction after the requested date. A later market value should not silently replace an earlier value simply because it is easier to download.

Separate value from spendable cash

Use three columns: documented value at the requested date, valuation questions requiring professional attention, and cash availability. An asset can have a statement value and still require a sale, settlement period, redemption process, or additional documentation before it can pay a plan expense or benefit.

Inventory item	Evidence to attach	Question to resolve
Cash account	Dated statement and pending transaction list	Does reported cash include payments already committed?
Marketable investment	Position statement and trade confirmations where relevant	What must occur before sale proceeds become usable?
Restricted or nonpublic holding	Ownership, valuation support, restrictions, provider contacts	Is the value current and when can cash actually be obtained?
Outstanding transaction	Instructions, confirmations, settlement records	Which date and classification should the professional apply?

This inventory does not endorse any investment. Ask the appropriate investment and plan professionals to evaluate suitability, restrictions, valuation methods, and transactions. Do not infer that an investment is permissible simply because a custodian displays it.

Hypothetical: a large asset total with a cash gap

Illustrative liquidity arithmetic: Assume a hypothetical asset inventory shows $20,000 in cash, $180,000 in marketable holdings, and $300,000 in a restricted holding. The total documented balance is $500,000. These are invented asset labels and values, not a client portfolio, actuarial asset value, or recommended allocation.

Assume separately that the administrator has identified $28,000 of authorized plan payments over the coming review period. The example assumes no new employer deposits, no investment income, and no pending transactions. Initial cash is $20,000, so the immediate liquidity gap is $28,000 − $20,000 = $8,000.

If the investment professional confirms a sale can deliver $12,000 of net usable proceeds before those payments, the illustrative available cash becomes $32,000 and the remaining cash becomes $4,000. “Net” assumes any relevant sale costs have already been allowed for. This calculation determines no legal funding amount, deduction, required distribution, or investment instruction.

The $500,000 total never changed the need to schedule the cash. Conversely, selling a holding changes the form of the plan's assets; the example does not treat sale proceeds as a new employer contribution. Keep those categories distinct in both the trust records and communications.

Do not choose the actuarial asset number yourself

The IRS defined benefit plan overview assigns funding calculations to an enrolled actuary. Supply the underlying asset evidence and ask which figure is used for each purpose. Statement value, a value used in an actuarial calculation, and currently available cash should have clear labels.

If the actuary requests adjustments or additional documentation, preserve the original packet and the explanation. Ask whether a stale valuation, unresolved ownership issue, or missing transaction changes reliance on the calculation. Do not “fix” an unfamiliar difference by moving numbers until two reports agree.

Make liquidity a separate adviser conversation

Provide expected authorized payments and expenses to the investment professional and administrator. Ask who confirms payment amounts, who initiates transactions, who approves them, and who checks completion. Record any redemption restrictions and the lead time needed to supply cash.

The IRS qualified-plan guide describes the exclusive-benefit requirement for plan assets. Keep the payment discussion focused on proper plan purposes. The business operating reserve and the plan trust serve different obligations; an inventory does not make plan holdings available for business expenses.

When a payment or investment transaction raises a question about plan terms or permitted treatment, escalate before execution. Give the professional the actual documents and proposed transaction, rather than asking for a general assurance about an asset category.

Close the asset review with an exception register

For each open issue, record the asset, missing evidence, responsible person, expected resolution, and reports affected. A complete packet can still include unresolved matters if they are clearly disclosed. Ask the actuary whether the remaining items prevent issuance or require qualifications.

TaxBowl's tax team can help organize the accounting records and coordinate the asset questions with your plan professionals. Bring the account inventory, dated statements, payment schedule, and exception register so the valuation discussion starts with traceable facts.