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I guess my age is showing. To me the concept of charging the participant for plan expenses is the "new and different" way of doing things. I miss the days when employers expected to pay those expenses!

I think the practical way to do this is to use a share class that carves out all but the basic management expenses, and then bill all other expenses directly. I'm pretty familiar with the American Funds, so I'll use Income Fund of America as an example. R-4 share expenses look like this: Management fees 0.22% 12b-1 fees 0.25% Other expenses 0.15 Total 0.62 If you use the R-6 share class, the 12b-1 fees go away, and Other drops to .06, so the total is 0.28%. The advisor (has to be an RIA not just commissioned) can still get 0.25%, and since "Other" includes some sub-TPA fees and recordkeeping costs, those can also be billed separately. This works in RecordKeeper Direct and PlanPremier TPA. Remarkable how low the actual "Management" part of the overall fees is.

Hey MoJo, This would have been mutual funds. As I recall, the were told that they could do it, but since they never actually went through with it it is possible that it would have been nixed at a higher level. J

RatherBeGolfing: Were those mutual funds or separately managed accounts? I did some research a while back (way back) and under SEC rules a mutual fund cannot not take fees out from the assets held by one investor invested in a share class when it takes fees out from the accounts of the other investors in the same share class (i.e. all investors in a regulated investment company ("mutual fund") MUST pay the same freight (within the same share class). So, the only way that would work would be if there were either in a no-expense share class (not likely) or if they reimbursed the plan after the fact (and I recall an ancient Rev Rul (1980 or so) that indicated that inherent expenses involved in managing assets could not be reimbursed and any such attempt would be considered a contribution to the plan (and too the extent it disproportionately benefited you know who, you had a discrimination problem). Now, if it were a separately managed account (not a mutual fund) and the deal you struck with the money manager allowed for the payment of fees not from the assets, you might be able to do it.... If I can find the research or the Rev Rul, I'll try to post it.

I had a situation that was a little different, but it may be helpful. I have a client, a fairly large medical practice with 10+ physicians and about 70 employees. The practice does very well. During a yearly meeting, the physicians asked whether they could pay all investment expenses out employer assets rather than from the investments. They never pulled the trigger on it but we verified that it could be done. We looked into it with the adviser and the record keeper and indeed, there was a way for the employer to get quarterly invoices for the amounts that would have been fees per the expense ratio. The fee would never be deducted from plan assets, and the employer gets to write them off as a corporate expense. I agree with ETA though, I don't think you can do it by reimbursing fees already paid by a participant and not consider it a contribution.

I see your point. The Regs, when written, seemed to have made it a point to use a date within a calendar year for their example. It's never going to be an issue whether you offset a loan on October 5th (for example) instead of September 30th. When you're crossing tax years, then it issue becomes whether it is a hard-fast line in the sand for tax purposes. I don't think it would be egregious enough to warrant this level of scrutiny given a process that has been designed to meet the 72(t) standard. The issue comes into play, in my mind, when you look back and determine (in retrospect) that you would've faired better had the amounts been taxable in an earlier year than the one reported. At the end of the day, the amount (at the time of offset), whether December 31st or early in January, could've avoided all taxation had it been rolled over to an IRA. Remember, at the point of offset, it's not a deemed distribution, but an actual distribution. I see you're point, but this is the absolute FIRST time I've ever heard of a situation where a participant is arguing for an earlier 1099R; when all could've been avoided by merely paying rolling over the loan (or requesting the loan offset distribution at the time the employment terminated). One thing that will always been constant in our industry, however, is that these types of issues will always exist at the lines where one period ends and another period begins. We recently had Regulations on post-severance Compensation because of deferrals made by employees who terminated late in the Calendar year. It's always going to be an imperfect process. I'm not suggesting to undermine any rules (even though it may appear to be that way), but this is a one-off that could've been easily avoided. Good Luck!