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Distribution expenses charged to participant's "account"


Belgarath

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There's always a new question! Tax-exempt 457(b) plan. Participant retiring, and is going to take monthly installments for some number of years. The recordkeeper or TPA or whoever handles this is going to be charging a monthly fee to calculate each month's distribution. Employer wants to know if this can be charged to the participant's "account."

I've reviewed their plan document, and it is silent on this issue. It provides for payment of Trustee fees form the plan assets if it is a Governmental plan, but this isn't. While it seems reasonable to have fees charged to the participant's account,  (which is a general asset of the employer, not in a Rabbi Trust) I can't find anything specifically addressing this issue in the regs. Is this just a matter of State law? Or have I missed something? Anyone ever dealt with this issue? 

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If this is an unfunded § 457(b) plan for a select-group employee of a non-governmental non-church tax-exempt organization, the plan likely is governed by ERISA’s title I, but without subtitle B’s part 4 (Fiduciary Responsibility)—ERISA §§ 401-414, 29 U.S.C. §§ 1101-1114.

 

The employer’s unfunded obligation to its employee is as provided by the contract between them.

 

If there is ambiguity in what that contract (including a plan document, if it governs), one construes and interprets the contract according to the common law of contracts.  That law includes reasoning for interpreting ambiguous texts.

 

If ERISA governs, it preempts States’ laws.  However, if the plan document or contract itself includes a choice-of-law provision, such a provision might have some effect, at least for what interpretation methods a court would use for a dispute about an ambiguous text.

 

As your query observes, for an unfunded plan a bookkeeping account is no more than a measure of the employer’s obligation to pay deferred wages to its employee or former employee.

 

It seems your client’s question is primarily about contract interpretation.

 

I have negotiated both sides of these questions, depending on whether my client was the employer or the employee.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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