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RatherBeGolfing

B/R/F issue?

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Participant A owns 100% of XYZ corp which sponsors the XYZ Plan.  As of 1/1/19, participant A will acquire a significant percentage of ABC corp, which sponsors the ABC Plan.  ABC and XYZ will be a controlled group as of 1/1/19.  XYZ corp is mostly management, ABC Corp is mostly non-skilled labor.

The ABC Plan and the XYZ Plan are both at the same recordkeeper, and the plans will have the same plan design and availability.  The only difference is that the ABC Plan has higher recordkeeping fees.  As of right now, they would prefer to keep the plans separate. 

I had a chat with the financial advisor (same advisor on both plans) the other day, and his concern is whether different pricing could be a nondiscrimination issue. 

My assumption is that the pricing difference is not arbitrary but based on assets, participation rates, and so forth. I believe that all participant features like loans and distributions have identical pricing.

It “feels” like a discrimination issue because the plan with mostly low paid labor is priced higher than the plan with mostly higher paid management, but each plan is priced on its own merits.

Maybe the turkey leftovers is making me overthink this...  Anyone see an issue with keeping the two plans separate based on the difference in pricing?

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RatherBeGolfing, I have seen this issue come up from time to time, often in professional firms where there are two DC plans, e.g. one for partners and staff in a law firm, one for associates. But in that case, the plan sponsor is the same, not just similar in ownership. I think the issue comes down to facts and circumstances. In the situation you describe, the historical pricing, assuming that the fiduciaries of each separate plan had done an adequate job negotiating the fees for the separate plan, would be a favorable fact and circumstance. However, if the recordkeeper is open to a reduction in fees in this circumstance (which it might not be, since you have two different entities as plan sponsors), the reduction would of course need to be shared pro rata. Other issues, such as payroll consolidation, etc., would come into play. Plan size, I think, would be an issue. Presumably you could get a lower fee if the plans were combined, but I don't think that that changes the decision whether to combine or not from settlor to fiduciary. Presumably Plan ABC has smaller accounts and possibly smaller total dollars, so that would also drive pricing.

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