Leaderboard

Here's one of many similar discussions from a quick Google search. I just get squeamish when I hear that the compensation is being paid DIRECTLY to the plan sponsor, rather than to the plan. I think it is ok to have it reduce the amount otherwise billed to the sponsor, since it is not a "settlor" expense. Any thoughts are appreciated! https://www.napa-net.org/news-info/daily-news/can-plan-charge-fees-terminated-participants-not-active-ones P.S. here's an excerpt from DOL 2003-3. Accounts of Separated Vested Participants. Some plans, with respect to which the plan sponsor generally pays the administrative expenses of the plan, provide for the assessment of administrative expenses against participants who have separated from employment. In general, it is permissible to charge the reasonable expenses of administering a plan to the individual accounts of the plans participants and beneficiaries. Nothing in Title I of ERISA limits the ability of a plan sponsor to pay only certain plan expenses or only expenses on behalf of certain plan participants. In the latter case, such payments by a plan sponsor on behalf of certain plan participants are equivalent to the plan sponsor providing an increased benefit to those employees on whose behalf the expenses are paid. Therefore, plans may charge vested separated participant accounts the account's share (e.g., pro rata or per capita) of reasonable plan expenses, without regard to whether the accounts of active participants are charged such expenses and without regard to whether the vested separated participant was afforded the option of withdrawing the funds from his or her account or the option to roll the funds over to another plan or individual retirement account. Ugh - this gets a little murkier all the time. It seems that under IRC Section 4975(d)(10), assets of a Plan can be used to reimburse a disqualified person for properly and actually incurred expenses related to services rendered for the Plan without being classified as a prohibited transaction that is subject to penalties.

The plan document probably says that anyone who is eligible for deferrals is eligible for safe harbor. If that's the case, and the deferral feature was first effective after the participant's date of termination, then I don't believe they would be eligible for safe harbor, as they were never eligible for deferrals. If the participant is actually entitled to some contributions under the plan, then yes, they need to receive an SPD as they need to be notified of their rights under the plan. No one is required to receive a safe harbor notice for a safe harbor non-elective plan any more.

I'm fairly new to the world of VEBA, but my understanding has always been that in order to have an HRA, there can be no employee contributions. Since a VEBA is just the funding vehicle, how can an association have a post-retirement HRA that is funded by voluntary post-tax employee contributions with a small employer match? I have an IRS approval letter for the VEBA where the plan accurately described itself as voluntary post-tax with a death benefit, but I'm perplexed as to how/why the IRS granted approval to begin with. What am I missing?

Belgarath, the payment of an administrative fee by plan trust to employer would in the first instance be a PT under ERISA 406(b)(1)(C). You could claim exemption under ERISA 408(b)(2), but would need an independent fiduciary to approve the contractual arrangement under Reg. 2550.408b-2. The equivalent Code sections are 4975(c)(1)(D), (d)(2), and Treas. reg. 54.4975-6.

Great advice given by all posters; One minor edit-to the last poster, Aon Hewitt still exists, they just sold the administration business to Alight ( I know because I have an account with them).

Prior discussion on the topic:

If you give the employee the choice to receive the amount in cash, or have it contributed to the plan, that's a CODA.

Why do you have concerns about sending out a copy of the advisory letter? It's kind of public information isn't it?

Form 8955-SSA. It was called something else once upon a time but that's the current form to report terminated employees with deferred vested benefits. When participant applies for Social Security they get that notice if they were reported to SSA unless they were later removed. But in my experience it's been hit or miss that they actually get removed when you report code D. maybe it's got better in recent years but the old days it seemed like over half the folks who were "removed" still got the letter.

I am sure others will chime in, but you seem like you did what you needed to do, but you will likely need an US based attorney to represent you. Does Grumman still exist? Just because Fidelity is acting as plan administrator doesn't absolve Grumman from responsibility. It appears you did everything that was required, but Fidelity just doesn't have the records. You should ask Fidelity for a copy of Grumman's QDRO policy. Typically even the hint of a QDRO is enough to cause the PA to stop any payments that might be allocated to you. IOW, if the benefit is in pay status - your information to Fidelity should cause them to at least escrow "your" portion going forward until things are resolved. Also, if the participant commenced retirement payments, he was likely legally obligated to inform Fidelity/Grumman that a QDRO existed. If he didn't, you will need to sue him for your portion of the value of the payments he received. The participant might also be guilty of fraud. If payments have not commenced, and regarding future payments if they have, you should be in a good spot, but you will need to continue to work with Fidelity and/or go to Grumman directly. They may just kick you back to Fidelity, but the squeaky wheel gets attention.