Plan Expenses

[Guest Hadden2001]

Payments have been received pursuant to a settlement with Executive Life over the last three years. The employer previously paid for related expenses because there was not sufficient funds in the plan. A small final payment has been received. Could the plan now reimburse the employer for the otherwise proper expenses it paid. The plan document permits such expenses to be paid from the plan. Is there any problem with these expense having been paid for as long ago as 3 years?

It seems if it was originally an expense that could have been properly expensed, then the mere passage of time shouldn't have turned this into a prohibitive reimbursement.

[Kirk Maldonado]

Does the plan provide for the direct payment of those expenses or the reimbursement of the employer for those expenses?

[QDROphile]

If the plan is reimbursing expenses paid three years ago, did the employer effectively loan the money by covering the expense with the understanding that the loan would be repaid? Or is the plan making a gift to the employer because the employer was so nice to cover the expenses three years ago?

[Guest Hadden2001]

The plan document provides for both payment and reimbursement of expenses. The employe simply does not want to go the hassle of making the allocation, which would be very small ($8 to $10 a participant). And as justification, the employer knows that it has paid significant expenses that would be properly chargeable. I am most concerned about the timing issue? Think that is relevant? Or, is a properly chargeable expense always proper?

[BFree]

It doesn't seem to be an expense now that it has been paid.

Can't you think of any new expenses?

[GBurns]

A properly chargeable expense is always proper even if paid in a delinquent manner. This is no different from a Bad Debt recovery.

What I do not understand is your eventual reference to an allocation per participant. You originally referred to plan expenses now you refer to participants. 2 separate issues.

Does the PD allow the plan to pay the expenses or advance the payment of expenses for plan participants?

As QRDOPhile asked ..Did the employer properly document his payments as loans to the plan or were they recorded as gifts?

[Erik Read]

I would also review the tax filings of the employer - did they consider the "Plan Expense" that they covered as deductible expenses? If so, then I don't believe that under audit the reimbursement to the employer by the plan of an expense that was also deducted from the employers taxes would be favorable.

[Kirk Maldonado]

ERead:

The reimbursement would, of course, be taxable to the employer. Are you thinking that there would be other (adverse) tax consequences?

Personally, I don't think being taxed on amounts you receive is that bad. I would glad be willing to be taxed on unlimited amounts of income, if somebody were willing to pay it to me.

[Erik Read]

As long as we're agreed that the payment would then be taxable to the employer - no arguement from me.

I don't like the "loan" idea though - loan from employer to the plan doesn't sit well with me for some reason.

[Kirk Maldonado]

ERead:

You don't like a loan from the employer to the plan even though the DOL has a prohibited transaction class exemption for it?

[QDROphile]

The loan idea should bother you. And maybe it should bother someone who thinks you can reimburse expenses without regard for time.