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Paying individual advice fees from that participant's assets


Guest CitationSquirrel

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Guest CitationSquirrel

I've seen a couple generic questions close to this one, but they haven't provided me with the info I'm looking for. Can someone direct me to a specific cite, guidance or authority that would allow a participant to pay for individual investment advice from their retirement plan assets?

The scene would be as follows: Paul Participant has hired Mr. Churn to provide investment advice on his retirement plan investments for $500. Paul wants to pay Mr. Churn with funds from his retirement plan.

I have seen some articles (mainly IRA related) that have stated that it can be done. Also, I'm not as much concerned (at this point) with the royal PITA that it would logistically be to do this. I just need to read the authority behind it. Any direction you could give me would be greatly appreciated.

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Doubt this is exactly what you are looking for but this http://www.dol.gov/ebsa/publications/401k_employee.html might help.

What you are describing would seem to fall squarely under investment advisory fees that could typically be paid from the plan. Mr. Chrun might need to be a Registered Investment Advisor for it to work but beyond the royal PITA of logistics and notices, (and the usual question of is the fee reasonable) I don't see where this would be a problem.

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CitationSquirrel, for tax rulings that treat a direct payment of an investment adviser's fee from the participant's account as not a distribution that could violate IRC 401(k)(2)(B), 403(b)(7)(A)(ii), or 403(b)(11) (and as not a distribution that could attract the extra 10% tax on a before-retirement distribution), see IRS Letter Rulings 9332040, 9316042, 9047073.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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  • 1 month later...

It is truly noble and upright for a record keeper to separately state elements of the record keeper's fees. Whether or not it is reasonable for the fiduciary who negotiates the fees to approve a certain fee for something that is provided (or whether or not to provide it) is another matter and involves evaluation of what is being provided and the value of it to the plan and its participants. To answer you question, I do not see plans with such an "automatic" charge. Provision of investment information, tools, and advice can be part of the services contract.

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  • 3 months later...

If Paul Participant wanted to pay the some or all of the administration and/or investment fees for his 401(k) plan with a personal check instead of from his account, disregarding the administrative difficulties, could Paul do that? If not, what is the applicable law that prohibits it. I believe that he could do that for an IRA.

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Has Mr. Churn been appointed by the Trustees to provide investment advice to plan participants? Or is this relationship outside of the plan?

QKA, QPA, CPC, ERPA

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

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