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What fees can be paid from the plan assets?


Jakyasar

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Hi

Dealing with an overfunded defined benefit plan (DBP). Plan covers only the owner and spouse and not covered by PBGC.

Client asked me if he can pay the following fees from plans assets:

1. He has an independent contractor (IC) working for him on a personal level (family related matters) however sometimes helps gathering annual data for the DBP. The IC is always paid from personal funds. Client wants to know if the fees related to the time spent on the plan related issues can be paid from the plan. 

2. The client's CPA for the sponsor also does help with plan related issues and client wants to know if time spent on plan related issues can be paid from the plan's assets to the CPA directly from the plan.

3. Client, as the trustee, wants to get paid from plan assets for his services to the plan as investment advisor. Per my research, possibly not doable but I may have missed something here.

I am sure there are some questions I am asking/thinking of.

Your comments are appreciated.

Thank you

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I assume the Plan allows for payment of expenses...

1. Assuming the IC isn't a party-in-interest that that would create a PT, I don't see a problem with the plan paying what amounts to reasonable administrative expenses.

2. Again assuming it is ongoing adminstrative expenses of the plan shouldn't be a problem. If its a settlor function it should be paid by the sponsor.

3. I believe this would be a prohibited transaction. I don't think there is a class exemption that allows this but I could be wrong.

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And remember, the expenses have to be reasonable.  Not gonna pay someone $5,000 to put together census data for a 50 person plan.

(and if they really want to pay that much, send them my contact info.  I'm free on weekends to help out.)

QKA, QPA, CPC, ERPA

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

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1. I think the IC needs to provide services directly to the plan rather than simply helping the plan sponsor gathering data for the plan, and provide detailed invoices for such services so reasonableness can be determined.

2. Again, if services are provided to the plan and not to the sponsor for the plan. Consulting with the owner on how to maximize contributions - not service to the plan. Preparing a 5500 filing or reconciling assets - yes, but have a hard time thinking a CPA is needed for any service to the plan rather than the sponsor.

3. Absolutely no on getting paid to advise and trustee his own plan.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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23 hours ago, Jakyasar said:

1. He has an independent contractor (IC) working for him on a personal level (family related matters) however sometimes helps gathering annual data for the DBP. The IC is always paid from personal funds. Client wants to know if the fees related to the time spent on the plan related issues can be paid from the plan. 

Depends on what you mean by "plan related issues" Is the IC reviewing/consulting on plan design changes (settlor functions) or is the IC helping with gathering data/determining amount of benefits (administration expenses). Settlor functions-no plan assets. Administrative expenses--probably yes. And, as stated above, just because payment can be made for the services, it has to meet one of the PT exemptions (reasonable comp, etc..)

 

23 hours ago, Jakyasar said:

2. The client's CPA for the sponsor also does help with plan related issues and client wants to know if time spent on plan related issues can be paid from the plan's assets to the CPA directly from the plan.

You need to be more specific on "plan related issues." See my comments above. If it is a function that the settlor normally engages in, such as making a plan amendment, determining plan design changes, then no. If it part of what is normally considered administrative expenses of the plan, then probably yes. 

 

23 hours ago, Jakyasar said:

Client, as the trustee, wants to get paid from plan assets for his services to the plan as investment advisor. Per my research, possibly not doable but I may have missed something here.

NO. NO. NO. NO. Don't even think about this. 

 

 

 

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