pooled plan sponsor wants to reimburse the trust for fees

[AlbanyConsultant]

In this pooled money purchase plan, the custodian hits the account for their fees directly.  The plan sponsor doesn't want the participants to have to suffer the fees, so they deposit money into the account to cover the fees.  I can't see any way in which can be OK.

My first thought was to include it as part of the contribution and reduce the remaining deposit.  But I've got terminated participants who are being affected by this fee as well, and obviously they can't benefit from a contribution allocation.

I asked the plan sponsor to bonus the participants in the amount of the fees that were allocated to each of them.  That was not met enthusiastically.

I asked the custodian to change their policy to bill the plan sponsor instead.  It's not the right kind of account, it doesn't work, all sorts of other excuses that I don't believe for a moment.  So now there's a big call tomorrow to discuss why I'm causing a problem.  Hey, I'm not the problem here!

Is there no way for the participants to be shielded from the fees (which aren't unreasonable in amount, but, still) because the custodian won't play nicely?

[Belgarath]

Perhaps this will help.

https://www.irs.gov/pub/irs-drop/rr-02-45.pdf

[C. B. Zeller]

Thanks, Belgarath, for the on-point rev ruling. Here are the good bits:

Quote

A payment made to a qualified defined contribution plan is not treated as a contribution to the plan, and accordingly is not subject to the Code provisions described above, if the payment is made to restore losses to the plan resulting from actions by a fiduciary for which there is a reasonable risk of liability for breach of a fiduciary duty under Title I of the Employee Retirement Income Security Act of 1974 (ERISA) and plan participants who are similarly situated are treated similarly with respect to the payment. For purposes of this revenue ruling, these payments are referred to as “restorative payments.”

So if you can classify the fee reimbursements as "restorative payments" then they would not be treated as contributions. However:

Quote

As a general rule, payments to a defined contribution plan are restorative payments for purposes of this revenue ruling only if the payments are made in order to restore some or all of the plan’s losses due to an action (or a failure to act) that creates a reasonable risk of liability for breach of fiduciary duty.

If the fees being paid out of the plan are reasonable, then there is probably not a reasonable risk of fiduciary breach, and therefore they could not be reimbursed with restorative payments.

1 hour ago, AlbanyConsultant said:

Is there no way for the participants to be shielded from the fees (which aren't unreasonable in amount, but, still) because the custodian won't play nicely?

Time to find a new custodian.

[ConnieStorer]

Long ago.... when pooled accounts were the norm it was not uncommon for employers to reimburse the plan for administration/Trustee fees.  It was my understanding that this was not a problem.  I have not seen any reimbursement in a very long time but did I miss a change in the regulations.

[QDROphile]

I thnk the point of the discussion is that the provider will only take payment in the form of a charge to the trust assets. To the extent that certain fees and expenses are eligible for employer payment or reimbursement (not all are), that can be handled by separate billing/payment, not charged to trust assets, subject to compliance with the applicable PTE (depending on the nature and timing of the reinbusrement arrangements).

[Bird]

16 hours ago, ConnieStorer said:

Long ago.... when pooled accounts were the norm it was not uncommon for employers to reimburse the plan for administration/Trustee fees.  It was my understanding that this was not a problem.  I have not seen any reimbursement in a very long time but did I miss a change in the regulations.

I think the way I would put it is that it's always been a problem but realization of that has come along slowly.

[AlbanyConsultant]

Thanks, everyone.  I think Bird's point is spot-on for the client - this plan has been around since the early 80's or so, and we took it over a couple of years ago.  "We've always done this" is what they keep saying, and "But you shouldn't!" is my reply.