Who Pays The Adminitrative Fees In A Qualified Retirement Plan?

Qualified retirement plans provide tax deductible benefits for employers and employees. But these plans require adherence to governmental regulations, and there are costs involved in the establishment and ongoing maintenance of the plan.

Many of the expenses are permitted to be paid from the assets of the plan, although certain expenses must be paid by the sponsoring employer.

The Department of Labor (DOL) does not permit expenses to be paid from the plan assets if they benefit solely the plan sponsor. An example would be preparation of the initial plan document, preparation of voluntary plan amendments, and certain termination fees.

The DOL does not allow fees related to the administration of the plan to be paid by the plan if they are prudent, reasonable, and permitted under the plan document. The last provision is the really important one. An example of permitted administrative costs that may be charged to the plan participant:

   1) Participant recordkeeping
   2) Preparation of benefit statements
   3) Summary of annual reports
   4) Notice for automatic enrollment
   5) Plan amendments required by law changes
   6) Investment related fees
   7) Trustee fees
   8) IRS determination letter requests

The allocation of these permitted expenses can be done by using one or both allowed methods. The first is allocation on a "per capita" basis and the second is on a "pro rate" basis.

Per capita means that the amount is allocated equally based on the number of participants in the plan. Pro rata means allocation is done proportionately based on the account balances.

Some fees are better allocated per capita and others are better using the pro capita method. Again this is another reason for you to stay close to your administrator or change to an administrator who will help you make these determinations before reading an article such as mine.

Expenses may only be paid from the plan assets of the plan document authorizes plan expense payments or is silent on the payment of expenses although is not required to provide such detail. Plan documents that specifically prohibit the payment of expenses may be amended prospectively to remove this provision and to allow the plan to pay expenses in the future. However, the expenses of this amendment must be paid by the employer as a voluntary amendment. Sorry!

Participants need to be informed if plan expenses can be deducted from their accounts. Such information should be included in the Summary Plan Description (SPD) which is required to be distributed to each employee upon entering the plan.

Some plans provide that allowable expenses may be paid from the forfeiture account. The impact that this will have depends on how forfeitures are treated under the terms of the plan. Some forfeitures can be used to make contributions that the employer would have normally made without the forfeitures. Some forfeitures may be used to pay administrative expenses. What does the plan document allow?

Employers have the option of paying certain expenses of a qualified plan from the business or from the assets of the plan, in which case the plan participants share the burden of such costs. The DOL has provided rules to determine which expenses may be paid by the plan and the allowable allocation methods among participants' accounts.

What does your plan document say about expenses? Now is a good time to investigate.

For more informations regarding business planning and qualified plans please visit the Hargrave & Associates, LLC website at http://www,hargrave-lyons.com