TPA Fees to be recovered

[Guest MEGary]

We have a plan that chose to have the TPA fees deducted from the participant accounts. After the deduction took place, they realized that the amounts deducted were greater than they anticipated (the participants started to complain). Can the employer reimburse the plan for those fees without them being considered a contribution for the year?

Thanks in advance for any help!

[Archimage]

No, if fees are reimbursed, then you must treat it as a contribution. Then you have to allocate it according to the plan document. If the client does not like this, then they need to start paying the bill instead of having it deducted from plan assets.

[Guest MEGary]

Can you provide a site that would give me this information?

Thanks!

[Archimage]

Here is a link that may serve useful. http://www.cyberisa.com/erisa_new_current.htm

There is actually no guidelines published by the gov't but they have issued several private rulings dealing with issues such as this. Basically, if the expense or loss is feasible then you can't reimburse. If the loss or expense is due to negligence, then you can reimburse the losses.

[jaemmons]

I agree with Archimage to a point, but an asset based charge is a different reimbursement than a TPA admin/recordkeeping charge. TPA admin/recordkeeping charges are generally deductible expenses under IRC 162, since they are considered ordinary and necessary business expenses (they are providing retirement benefits to their employees). If the employer deems the charges to be too excessive, then it may constitute a breach of fiduciary responsibility to not have the employer absorb these expenses or at least a portion of them. The problems I have seen are with respect to surrender charges associated with insurance products. Here, these charges are asset based to a taxexempt trust under IRC 501(a) and as such any payment taken from these assets which are reimbursed by the employer will generally, assuming that they are reasonable, be considered an employer contribution subject to deductibility, 401(a)(4) and annual limit testing (415).

[Guest MEGary]

:confused:

The employer has deemed the charges to be too execessive (it is a new plan with minimal assets and one of the participants was charged a $400.00 fee for the services), so has there been a breach in fiduciary duty? Does this mean that they can reimburse the participant accounts for the charges made? I am struggling to find any information regarding this topic. Does anyone have a site or information that would clarify this. I have looked in many websites as well as in The ERISA Outline Book and cannot conclude what should be done for this client.

Thanks for the help!

[IRC401]

Be careful. If you take the position that there was a breach of fiduciary duty, you may have to disclose the breach in the financial statements or on the Form 5500.

[John A]

http://www.ebia.com/weekly/articles/2001/4...orativePay.html

Note the "real and demonstrated threat" requirement, not just "participant dissatisfaction."