A large 401k (over 5000 ees) plan is terminating. The trustee has put in a lot of time with both a DOL audit and in assisting with the accountants audit, as well as other admin. issues. Trustee wants to bill his time to the plan, which would result in around $20,000 invoice.

He can't do this, right? This would be a Prohibited Transaction. But, given the time spent on all of this, could the employer pay him for his time?

Thanks

If the trustee you describe is an employee of the employer that maintains the plan, it's unlikely that the plan could pay for such a trustee's services. Even if an expense otherwise would qualify for the necessary-and-reasonable-services exemption [29 C.F.R. 2550.408b-2] with approval by an independent fiduciary that had no interest in the payee, another regulation interpreting that exemption declares unreasonable (and thus a PT) "compensation to a fiduciary who is already receiving full-time pay from an employer ... (any of whose employees are participants in the plan)[.]" 29 C.F.R. 2550.408c-2(b)(2).

What the employer feels like paying for from its resources is the employer's question.

Be careful about settlor vs. non-settlor functions. Is it possible that this person did some of each?

Right. In general, plan termination is a settlor function, the costs of which may not be paid out of plan assets.

Apparantly, the company is out of business for several years so the trustee has not been paid anything from the company.

Also, I understand that settlor functions cannot be paid from the plan, but I considered most duties involved in a plan termination to be non-settlor functions. Costs involved in the decision to terminate and to amend the plan for termination would be settlor funtions, but the trustee has been doing all of the work sending notices to former employees, looking for lost participants, updating account balances, etc. I believe all of these are not settlor functions and could be paid to him from the plan. Whether they are they worth $20,000 is something he would have to prove to the government.

Who is the trustee? It doesn't sound liike a problem. The corporate actions to terminate (resolutions) can't be paid, but the other functions you mentioned (DOL audit, etc.) sound fine. The participant's best interest is being served by getting this liquidated. Remember a big expense is to amend the plan to get it current (and possibly file a 5310 - but I wouldn't push that here) no matter what cycle it is on.

I am not familiar with the orphan plan rules, but won't those factor in and provide additional independent ability to hit up the trust?

The trustee = employer, and the company is no longer in business, hasn't been in at least 2 years.

Another concern I have though, is that it sounds like many of the duties he has performed are along the lines of service provider fees, which leads to ERISA 406(b) that states if the service provider is a fiduciary of the plan, who appoints himself to perform services, payment would be a prohibited transaction as self-dealing. Does that out weigh the fact that he is not getting paid from the company? I looked at the DOL website on self-dealing and still am not sure:

http://www.dol.gov/ebsa/regs/AOs/ao2001-10a.html

Is the 20k coming from participants' accounts? Or is there another source.

An important principle of the necessary-and-reasonable-services exemption is that the compensation of a fiduciary must be decided by another fiduciary that is independent of the service-performing fiduciary. With an orphan plan, it’s often hard to find any fiduciary, and even harder to find one that’s independent of the one who’s willing to do the wind-up work. That’s why a wind-up fiduciary who isn’t a qualified termination administrator (see below) or an uncompensated volunteer gets the Federal court to approve the appointed fiduciary’s services and compensation.

When a wind-up fiduciary has paid himself without independent approval, the Secretary of Labor has sued for restoration of the prohibited transaction. Arguing that the plan really needed the work isn’t a defense to the lack of independent approval.

The QTA rule can help only if an eligible bank, trust company, or insurance company that already has assets of the abandoned plan is willing to serve as the plan’s QTA. If such a company (not a natural person) volunteers, its fees for QTA service must be both “consistent with industry rates” and no more than the company’s fee for similar services for similar customers that are not orphan plans.

How is an individual a Trustee in that case? Is he a receiver?

mjb: I don't know for sure if the all money is coming directly from participant's accounts. I think they had some old terminees who had non-vested amounts that are in a pooled account currently (which is probably not correct, as these amounts should likely be fully vested now).

NAIU: I wasn't clear. The company was owned by 1 individual, who was also the only named trustee. The company is now dissolved, but the individual (not the company) remains as ttee.

I don't like how this smells. There is no independent fiduciary who appointed him to the clean up job.

Sounds like we have an employer fiduciary who has performed the functions of both, and now wants to be paid for doing what he (or she) was supposed to be doing all along. I don't see any way to pay the individual trustee any money under Section 4, ERISA.