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It is a little bit more complicated for nonqualified deferred income.

On what basis was vendor #2's deposit into the plan? They weren't reimbursing the plan for an expense it paid, partially or in total, because it was the employer that paid the expense. If the expense was paid by the plan and charged against accounts and then partially reimbursed, would that not have to be allocated back to participants? If the employer was reimbursing the plan for expenses the plan paid, and deducting as plan related administrative expenses then I think they would have to do that - they couldn't treat as contributions. Far be it from me to question a national vendor, but I didn't think that any plan-related party could just toss money into a plan and have it be used for whatever.

And even if the multiple-employer plan’s governing documents might allow a participating employer to specify less than 100% vesting for what happened before a merger or transfer-in, how confident are you that the MEP’s administrator will capably collect and use records to apply such a vesting provision?

Thanks for correcting me. At this point in my life, if it comes up in the next couple of weeks I might remember it, otherwise I will revert to my old belief. Sigh.

The statute defines “retirement income”. That definition’s first eight subparagraphs refer to kinds of retirement plans, contracts, or accounts. Subparagraph (I) about nonqualified deferred compensation puts some restraint on which payments are treated as retirement income.

For an ERISA-governed plan, a fiduciary must loyally and prudently evaluate and engage service providers considering only the exclusive purpose of what’s best for the plan “solely in the interest of the participants and beneficiaries[.]” Whether using a local service provider supports an incremental fee might depend on many factors, perhaps including the exact services engaged, how useful and valuable to the plan’s administrator or a participant is the physical nearness of a contact, and how much (or how little) of the work involves using a particular physical location of the service provider or of the employer/administrator. We might never learn how and where a court would “draw the line” because few ERISA litigations are about plans that might have borne an incremental fee because a fiduciary’s selection was based even partly on geographic nearness. Often, what’s important are qualities of the service-provider business and its services.

The can be significant price differences for retirement plan services for several reasons. Here are some examples. The services that are included or excluded in considering what are "retirement plan services" an vary widely. Some plans want only very basic services while others want only the best of everything for participants. There can be multiple service providers involved with plan administration. Recordkeeping services (plan accounting, transaction processing,...) may be delivered by one provider and compliance testing may be done by another provider. This is more likely to occur when the plan design pushes the limits permissible by regulations. There can be multiple service providers involved with investments. Some plans make all of their decisions about the selection of investment funds and leave participants on their own to decide how to invest their funds. Other plans engage independent investment advisors who perform annual, semiannual or quarterly reporting. The service providers may or may not be fiduciaries. This includes 3(16), 3(38) or 3(21) providers. Within these categories, there can be limitation on which services the provider is willing to act in a fiduciary role. Service provider pricing can be influenced by the service provider's overall company relationships with the plan sponsor. Some companies view retirement plan services as a loss leader with the opportunity to create an additional relationship with a client that generates significant revenue for other services. Many financial services companies have taken this approach, and so have many accounting firms and law firms. Service provider pricing also can be influenced by the amount of revenue received from asset-based fees. Retirement plan services typically are transactional in nature or are based on time worked. Neither is based on assets. If pricing for retirement plans services includes an offset for asset-based fees, his is not a big concern until the asset-based fees exceed the fees for services. There can be pricing differences between service providers simply because some service providers are mindful to increase fees to keep them current with the provider's operating expenses, and some service providers have not increased fees for years. Some plans have no clue what they are paying service providers. This is more likely to happen asset-based revenue sharing is used to pay for retirement plan services, and the plan sponsor does not understand the total picture of how much the plan is paying for these services. There likely are more scenarios. Determining the scope of retirement plan services and the full measure of the price of those services can be complicated. Plan sponsors may have varied perspectives on what services they want for their plan participants. Bottom line, plan sponsors are charged with understanding what they are paying and with being comfortable that they can justify as reasonable any fees paid by participants.

While not universal, I do agree that many still have a "I want a local TPA" mindset. Or they simply go with whoever their CPA or advisor likes to use. Which brings up an interesting question @Peter Gulia If fees are paid with plan assets, when do you draw the line between the benefit received by having a local provider and the reasonableness of the fee?

A Federal statute (4 U.S.C. § 114) restrains a State’s and political subdivisions’ income taxes on a nonresident’s retirement income. In the 1980s and early 1990s, several States assessed State income taxes on people who no longer resided or worked in the State. How? ‘The State provided you an exclusion from income when you lived or worked here and made your before-tax § 401(k), § 403(b), or § 457(b) contributions to those tax-deferred retirement plans. The State gets income tax to the extent your retirement payout is attributable to the accumulation from the exclusion we provided you.’ Often, this resulted, whether legally or practically, in “double taxation” because the State in which a retiree resided imposed its tax on retirement income, often with no credit for the working-years State’s income tax. Congress legislated a Federal supersedure, which applies to amounts received after December 31, 1995. 4 U.S.C. § 114 https://uscode.house.gov/view.xhtml?req=(title:4%20section:114%20edition:prelim)%20OR%20(granuleid:USC-prelim-title4-section114)&f=treesort&edition=prelim&num=0&jumpTo=true.

At least in the ESOP space so much of the competition is national that I don't see a lot of regional differences. The firm I work for has business development people working the whole country and if a regional difference that got large happened the national firms would grab the business. I concede ESOPs is a much smaller world than 401(k)s people are more willing to have their professional not very local. On the other hand a dentist or other small firm most likely expects their TPA to be in the metro area. So I can see more of a regional difference happening in that case.

Without getting into to specifics or actual fees, there are some huge differences in the TPA space. Its usually driven by what is acceptable in regionally. As an example I know firms in the northeast that charge anywhere from three to six times more for a pre-approved plan document than what I would consider average in the southeast. Not quite as much as what you describe, but still a huge difference for something like a vanilla 401k on a pre-approved document. Higher cost usually leads to higher fees, but 6X for professional services is a stretch in my opinion.

I didn't follow the link but I think that New Jersey thinks that if you deferred income while a NJ resident, you are supposed to pay tax to NJ on the income no matter where it is received. That is widely - universally - ignored.

By the way, notice in the April 2019 discussion, linked by @fmsinc above, the original post uses the term "retirement account", with no mention of whether it is a qualified plan or an IRA.

One of the new items in the SAR model language is the following statement: “Your plan is a [insert a brief description of the plan based on the plan characteristic codes listed for the plan on the Form 5500, including whether it is a defined contribution or defined benefit plan, and whether the plan is a pooled employer plan, another type of multiple-employer plan or a single-employer plan].” How are you approaching this? Does this mean that we need to list out every individual 5500 characteristic code description (or some version of them) as part of this?

For conversation's sake, we've been correcting it under the incorrect compensation definition - IRS Fix-It Guide #3 - as the bonus was incorrectly excluded from the eligible compensation. It all ends up as a QNEC contribution in the end anyhow, but the IRS website provides a pretty specific correction for this. https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-you-didnt-use-the-plan-definition-of-compensation-correctly-for-all-deferrals-and-allocations "If you've determined that an employee made deferrals that were less than what should have been made had the correct compensation amount been used, then a corrective contribution needs to be made to the employee's account within the plan. The employee would receive a corrective qualified non-elective contribution (which is an employer contribution in which the employee is fully vested) equal to 50% of the missed deferral (i.e., the difference between the amount that should have been deferred based on the use of correct compensation and what was deferred). In addition, the employee would receive a corrective employer matching contribution, if applicable, equal to the difference between what the employee would have received if the correct elective deferral was made and the actual matching contribution. Finally, the employee would receive a corrective employer contribution to the extent that he or she received a profit sharing allocation that was less than what he or she would have been entitled to had the correct compensation been used. All corrective contributions must be adjusted for earnings."

Zach Del, I would second (or, actually, third) what PamR says. Even with weaker language, you may be able to get a legal opinion that the auditor will accept. I handled a case like that once. I also had a separate case involving VCP where there was no such language. We were able to demonstrate to the reviewer that we administered the plan consistently over the years and that we had communicated to employees (e.g. in employee meetings documented with PowerPoints and also job offer letters) that bonuses would not be included in comp. The SPD was neutral on the subject and comp without bonuses passed 414(s). We got a favorable result in VCP.