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Quarterly statements - requirement for individual expenses


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Here's the situation: DC plan has individually directed investments. Participant has brokerage accounts. Assume all other disclosures - annual, SPD, etc., are correct and timely.

The participant takes an in-service withdrawal, for which there is a $125.00 fee. This fee is deducted from the brokerage account, and the statement to the participant shows the fee, but only says "check to TPA XYZ" - it does not specify what the check is for. The question that came up was whether this, in conjunction with the withdrawal request form which clearly states that there is a $125.00 fee which will be deducted from the participant's account, qualifies as appropriate notice and therefore doesn't require a "redundant" quarterly notice?

I can see both sides of this. This compliance part of me doesn't think this satisfies the letter of the regulation, (because the brokerage statement doesn't identify what the $125.00 is for) but the everyday practical side says that "darn it, this ought to qualify." The compliance side of me is winning.

Just wondering what others think?

The regulation provides:

(ii) At least quarterly, a statement that includes:

(A) The dollar amount of the fees and expenses described in paragraph ©(3)(i)(A) of this section that are actually charged (whether by liquidating shares or deducting dollars) during the preceding quarter to the participant's or beneficiary's account for individual services; and

(B) A description of the services to which the charges relate (e.g., loan processing fee).

The preamble says:

To the extent such a charge is

otherwise disclosed during a particular

quarter, for example by a confirmation

statement after a charge is deducted

from an account, that charge would not

have to be disclosed again on the

subsequent quarterly statement.

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FWIW, I agree with your compliance side. The brokerage account statement should specify both the amount and the reason for the deduction after the actual fee amount was deducted ... unless after the deduction, they sent the participant a separate letter or e-mail listing the amount and reason.

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I also agree with your compliance side..., but the view of your everyday practical side is what (perhaps, maybe, possibly - and every other hedge I can think of) is what a certain TPA that I'm familiar with does. Unfortunately, those darn brokerage houses just don't pay attention to us when we asked them to be more specific.

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Thank you for the responses. A follow-up question - What are the specific penalties involved IF the DOL were to determine that not providing the quarterly notice nder the "common sense" approach doesn't satisfy the requirement?

Seems like the only thing I can come up with is it is a fiduciary breach under the general fiduciary requirements of ERISA 404a? I don't think it falls under the civil penalties for failing to provide a quarterly statement under PPA, although I suppose the DOL could attempt to assert that. And I guess the fiduciary would lose 404c protection. But I'm still struggling with the specific penalties for this as a fiduciary breach, if indeed that is what it is.

Certainly all potential outcomes are bad, if adverse determination is made, but it would be nice to understand just HOW bad...

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Annual notice:

We're gonna charge you $100 for a loan, $50 for a distribution and $150 for a QDRO.

Participant takes distribution. There's a $50 fee on the statement.

Why is that a problem?

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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I go back to the specific wording of the regulation. (Mind you, this type of overkill is absurdity in my opinion, but I'm concerned about the specific requirements of the regulation - and the DOL isn't noted for being reasonable on such issues...) - the statement I specified, while it satisfies the the requirement in (A), does not satisfy the literal requirements of (B) as it does not describe the service.

The regulation provides:

(ii) At least quarterly, a statement that includes:

(A) The dollar amount of the fees and expenses described in paragraph ©(3)(i)(A) of this section that are actually charged (whether by liquidating shares or deducting dollars) during the preceding quarter to the participant's or beneficiary's account for individual services; and

(B) A description of the services to which the charges relate (e.g., loan processing fee).

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