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Reimbursement of Fund Fees ...


HCbs
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I've looked a a variety of loosely related threads but none get to the heart of my question so I'll ask it here.  I have a plan sponsor that would like to pick up ALL fees for plan participants, including fund fees.  The plan uses a combination of pooled funds (CITs & MFs).  Shy of converting everything to SMAs or having the fund companies develop an entirely new class of funds that are stripped of all fees (both unlikely for different reasons), this seems like it would involve some form of sponsor reimbursement to the Plan.  Key concerns identified so far that I'm looking for insights on:

  • Is there a viable path to get these fees reimbursed by the sponsor to get to the intended result without running afoul of various rules pertaining to employer contributions?
  • Is there a viable path to get these fees reimbursed by the fund company that doesn't involve the employer making a reimbursement and thus avoiding the challenges of them being considered an employer contribution?
  • Related to this 2nd approach, it seems that the the Revenue Sharing rebate analogy may be useful (the practice or recapturing and rebating 12b1's, SubTA, etc. without them being considered an employer contribution).  Could that analogy be extended so that the entire Expense Ratio is rebated in the way revenue sharing is?

 

This is one of those topics where I fear that the employer has a reasonable & positive motivation but the legal and operational hurdles might be difficult or impossible to overcome.

 

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Impossible.  The rationale is the mutual fund expense is intrinsic to the investment itself.  IT's a cost of operting the "company" that you are investing in.  Even though it is not the same, it is tantamount to reimbursing a participant who invests in IBM for the rent IBM paid on its real estate.  I know it's a crazy analogy but it is spot on.  You are investing a "business" that is in the business of investing money and one of the expenses of that business is to pay a fund manager.

Anything you do in this regard would be an employer contribution, and with it goes everything that applies to employer contributions (document provisions, testing, 415 limits, etc).

In other words, forgettaboutit!

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Austin Powers, CPA, QPA, ERPA

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Agree with Austin.  But you can strip all kinds of recordkeeping fees out and pay them directly to get the actual fund fees down to a few bps for index funds and maybe 30 or 40 bps for managed funds (not starting a debate on which is better).

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Ed Snyder

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