Lumpsum deduction of 401k administrative fees

[Guest ennemm]

I found a large (~6%) deduction in May 2002 from my 401k

with a company that I had left in Aug 2001. The company

(plan trustee) says this is an administrative fee that was

supposed to have been deducted all along but wasn't, so far,

that got deducted now. My plan contribution started in

last quarter of Y2000, so effectively 7 quarters to date.

The 401k provider said the plan trustee elected now

to have these deducted from the assets !

I felt that a $1000+ deduction for a $17000 of asset (all

in money market type fund) was rather steep. Ofcourse

there was no notice of this impending deduction or how

this was arived at, etc. Had I known, I'd have rolled

it over to my new (current) 401k.

Should I just accept this ? Do I have a recourse ?

I read other articles in this forum concerning lack of

disclosure requirements on employers & 401 providers.

Any advice ? Thanks.

[Guest wtitus]

I'm not certain specifically why you were charged the 6%, but here is a thought...

The funds you selected may have had a deferred load charge.

Can you provide me the name of the fund? I can see if I can find the fund information to determine if this is the case. Or, look in your prospectus for the funds that you held. Look especially for deferred load charges.

The other way to avoid this in the future is to perform a 401(k) rollover to another qualified plan or IRA rollover account. When you choose your investments to hold in this account, look for no-load, no-commission funds. Just an aside, you will want to select a diversified set of holdings (your account may be limited to type of funds they provide...).

Let me know by email if you have any other questions.

[Guest ennemm]

Thanks very much for your suggestions,

however, this charge is not from the fund.

This was an administrative fee levied that the

plan trustee (my ex-employer) elected to have

deducted from the account, and it was deducted

retroactively for several (6-7) quarters at once.

I wonder if this is legal. Especially, since I could

have rolled over the funds immediately after

leaving the company and escaped this penalty.

For the record, the fund itself was

Schwab Institutional Advantage money market fund.

which already deducts its own expenses prior to

monthly dividend distributions.

The fees seem rather excessive in any case,

and I do not know if I have any recourse to fight this

in probable absence of any disclosure laws for

such administrative fees.

[R. Butler]

If you do a search on Administrative Expenses in the BenefitsLink Board you should find several good articles on what administrative expenses can be charged to the Plan. $1,000 charged to one participant for two years of administration, does seem high, but I don't know all of the facts.

If you really want to pursue this, you should probably start by contacting the DOL. You could always contact an attorney, but that is a cost/benefit thing.

[actuarysmith]

The DOL has published guidelines on what can and cannot be paid from plan assets. In general, routine plan administration expenses involved in preparing the form 5500 tax return, ADP/ACP & Top Heavy testing, benefit statements, etc. are allowed to be paid by plan assets.

As far as whether $1,000 (on a $17,000 balance) is reasonable is tough to say. How many participants (eligible - I don't care how many contribute) are there in your employers plan?

If it is a relatively small plan (i.e. small number of participants to "amortize" costs) it may be reasonable.

It also may be that the plan recently amended "restated" the legal documents for GUST & EGTRRA. These expenses may have been passed through to the trust as well. This means that not only are you playing 1.5 - 2.0 years normal admin fees - you may also be footing the bill for some plan document or design costs.

[Kirk Maldonado]

It sounds like the plan divided the total administrative costs equally among all participants. In every other case I've seen, the plan divided the cost among the participants in proportion to the proportionate size of their account balances. You should check this out.

[mbozek]

Here is how to analyze the issues if you want to invest the time:

Any fees or expenses that can be charged to a participant must be in writing somewhere since the plan must be administered in accordance with written terms. Review your SPD to see if expenses are disclosed and if necessary get the plan document to see what the terms are for charging fees. You can request an spd from the plan admin. Plan can charge reasonable fees for administration costs but the terms have to be disclosed. Plan adm. can charge you .25 a page for plan document but SPD should be free.

You might also get an idea of the plan expenses by reviewing the last two annual reports (5500 form) filed by the plan with the fed government to see what expenses were charged for all participants. You have the right to get a copy of the 5500 although the plan can charge you .25 a page.

If the permissible charges are not stated in plan document file a claim for benefits with the plan administrator requesting a review /refund of the charge. The requirements for filing a claim for benefits is stated in the SPD. The plan administrator is required to respond to your claim in writing within 120 days and if your claim is denied PAdmin must refer to the provisions in the plan which authorize such charges. If the response evasive or vague or the pa doesnt respond you can file a complaint with the Pension welfare Benefits Adminitration of the US Dept of Labor which should be listed in the local phone book or check the WEB site. However, I am not sure how they will treat the claim.

I wonder what kind of admin expense could be justified for nothing more than reporting the amount of your investment in a mm fund on a periodic basis. E.g., IRA custodians charge no more than $30 a year for providing similar admin and reports - I know clients who have been charged excessive fees for nominal services... You need to follow the money.

[Guest ennemm]

Many Thanks -- to mbozek, Kirk Maldonado, actuarysmith, R.Butler, wtitus: I have followed some of the advice and here is the update you may find interesting:

This was indeed a shrinking small company 401k probably on the verge of canellation, as I hear, with few remaining participants. The cost seems to be divided among these few participants including myself (thanks Kirk Maldonado)

Since my last post I got out of the 401k via a rollover IRA, (thanks wtitus) but asked and received SPD (thanks mbozek), but unfortunately it does not mention anything on expenses, or the terms of the fees etc ;-(

Meanwhile, prior to rollover they deducted another $325 as next quarter's fees: even though my request was received and acknowledged by email prior to June 28th, they took their (usual sweet) time to rollover during the next quarter.

I also contacted DOL (thanks R.Butler & actuarysmith) who referred me to their regional Cincinnati office for Michigan, where I was asked to fax the last 401k statement. They pointed out that the statement listed a $1012 amount under "Loss" instead of the fees. Note that the money was always in money market fund which maintained $1/share value and infact added small dividend of $60 for the quarter so the question of loss does not arise.

On questioning the company that sent me the reports, on why the amount of $1012 was under loss rather than fees (which was vacant), they said "Administrative fees that were pulled out of the account will show as the loss, that is the way our record keeping system works" !

Meanwhile DOL says ask American Society of Pension Actuaries to determine if the fees are excessive, or hire a lawyer ! And I thought DOL would be able to help in such cases ...

mbozek, as per your suggestion, I should probably file for claim for benefits (I have not seen form 5500 yet)

Any other ideas ? Thanks again for reading

[mbozek]

E: You have been given the mushroom treatment- the plan admin and TPA have kept you in the dark and thrown manure on you. there is no way that fees for maintaining an account are a loss under any admin rules---- someone has been deceiving you and there is case law on this under ERISA. You should definitely file a claim for the amount of the fees on the basis that they are not a loss and secondly the plan has not disclosed that these amounts would be deducted from your account as required under ERISA. I did not expect the DOL to do anything. You could also ask the company that sent you the report the basis under the plan for hiding a fee as a loss-- in many venues this type of action can be called fraud/ deceit.

[actuarysmith]

I respectfully disagree with parts of the last post.

When a TPA deducts admin fees from plan assets, it is a very common practice to lump this in with investment gains/losses on both the statements and employer reports.

Many systems either do not have another "bucket" to reflect this, or TPA and/or sponsors don't want it to be so explicitly illustrated.

The investment gain/losses column should be read "Net Gain / Loss of all plan expenses (investment and admin).

[Guest ennemm]

The 401k statement shows:

Account Summary: Balance on All Accts(4/1/02)  $17264.50 Earnings Gain/Loss........    $ -947.57 Contributions.............    $ 0 Distributions.............    $ 0 Other.....................    $ 0Balance on All Accts(6/30)     $16316.93----------------------------------------------Investment Performance for period ending 6/30/02:Investment Option               Return Qtr  1Yr. Schwab Inst Advantage Money Fnd..... 0.40%  2.35%-----------------------------------------------Summary Statement of Activity:                              Schwab Inst                              Adv Fund      TotalUnits at Start of Period      17264.501Start of Period Unit Value        $1.00Units at End of Period        16316.928End of Period Unit Value          $1.00Beginning balance............$17264.50   $17264.50Contribution....................  0.00        0.00Distribution...................   0.00        0.00Dividend........................ 65.18       65.18[color=red]Fee.............................  0.00        0.00Forfeiture......................  0.00        0.00Gain/Loss ................... -1012.75    -1012.75 [/color]Loan Distribution...............  0.00        0.00Loan repayment..................  0.00        0.00Transfer  ......................  0.00        0.00Beginning balance............$16316.93   $16316.93

Notice that "Fee" section shows zero, but "Gain/Loss" shows the amount in question, and the plan admin wrote that it is the way their record keeping system reports administrative fees, and that she "is confident that the statement of account is complete and accurate. If there is something else we could provide please let us know." !

Will a separate statement from them stating that the Loss/Gain here is actually an admin fee, help in any way ? I am not sure they will issue one but I can try.

Any specifics on filing the claim for this amount ? I have earlier email from them saying "The plan administrator has elected to have administrative fees deducted from the plan and that is the balance difference you are seeing", and an another one saying "The fees are deducted quarterly from your plan and we do not provide any notification to the participants".

Thanks.

[actuarysmith]

The gain/loss is not an admin fee. It is an investment gain/loss, net of admin fees.

It seems that the administrator has already indicated that the column is the net of both expenses.

I think that you already mentioned in an earlier post that this is a shrinking plan (i.e. fewer and fewer participants). Most plan administrators have a relatively higher fixed cost (i.e. base fee) and a relatively smaller per participant charge.

As the group size dwindles, the base fee becomes predominant. When this is spread over a small number of participants, it can become significant compared to the actual investment returns / losses.

I cannot vouche for the accuracy of the math, I am just saying that the explanation sounds reasonable and it is quite likely that everything is correct. (It may not be shown in the best possible statement format, however)

I suppose you could check with a few other participants and make sure that they had similar findings with their statements.

Good Luck!

[mbozek]

What TPAs and plan sponsors consder to be a very common practice may very be a very illegal practice under ERISA if the participants are deceived or misinformed about the true character of the plan expenses. A fiduciary under ERISA can be liable under ERISA Section 502(a)(3) for appropriate relief, e.g., damages, if there is a breach of fiduciary duty which includes deliberately decieving plan participants. See Varity Corp. v. Howe, 516 US 489. It is no defense to claim that the TPA does not have a "bucket" to separately mark fees. Further making appear fees as losses can be considered an attempt to disguise the fees being charged to mislead the participants. I am not going to waste my time explaining why this practice is a violation of law if in fact the charges are fees and not actual investment expenses, See Curcio v. John Hancock Life Insurance co. , 33 F3d 226, but is curious that the DOL is not interested since the SPD regulations drafted by the DOL expressly require that a summary of any fees or charges that may be imposed on a participant's account be stated in the SPD. see Reg. 2520.102-3(l).

[R. Butler]

I don't necessarily disagree with MBozek that there may be a problem here, but I'm not sure that it is all that black & white.

I agree with Actuarysmith that expenses are not necessarily going be disclosed separately. It depends on the functionality of the TPA. I don't necessarily agree with mbozek that the Summary Plan Description must expressly state the fees that will be charged to the plan. In Advisory Opinion 97-03A the DOL puts forth the porsition that if the documents and instruments governing the plan are silent as to the payment of administrative expenses, the Plan may pay them.

Now having said that, as mbozek points out, the employer does have fiduciary duties that may have been violated. It still comes down to cost/benefit. Is the cost of pursuing the issue more than the benefit you are likely to receive?

[maverick]

I too find it curious that the DOL referred you to ASPA/an attorney. The DOL's head guy in Chicago (Steve Haugen??) talked at ASPA's Great Lakes benefits conference last year (5/01) and said one of their areas of emphasis would be 401k plan fees.

[mbozek]

The SPD regs were revised to require a statement of fees in 2000; therefore Opinion 97-03 is not valid. Also to determine the amount recoverable multiple the quaarterly charge by each particpant since inception and add legal fees. Remember the employer will have to pay for its counsel unless they have a Fid insurance policy.

[R. Butler]

I have been told by DOL auditor that they generally will not do anynore than call the Plan Sponsor unless more than $10,000 was involved. He said they just didn't have the resources. It may have been that guys opinion, I don't know.

I find it curious that they would refer anyone to ASPA. What exactly will ASPA do?

[MGB]

The referral to ASPA was only to check to see what their surveys say are standard fees to be able to take this information to a lawyer.

[R. Butler]

Thank you MGB.

mbozek, I may be mistaken on this, but I though the SPD regs were generally not effective before the first day of the second plan year following 1/22/01.

[Guest ennemm]

Thanks all, I am having a hard time keeping up but thanks for some extremely knowledgeable pointers to legal precedents and sections. Let me summarize here:

(1) Though I agree with actuarysmith in that this is a shrinking plan with base fee becoming a major and increasing proportion of total admin fees, it seems to imply that almost any fee must be considered as acceptable in such a case, especially if it has been divulged in some document (form 5500? -- I have yet to see it).

(2) As an end consumer, the way this appears to me is: at an arbitrary instance in time, my 401k account can be hit with:

a) an arbitrary (high) administrative fee,

b) disguised as a loss,

c) retroactive for past several quarters,

d) apparently justified on above (shrinking base) grounds,

e) without any prior notice to me to act upon (I could have rolled over earlier after leaving that employer in 8/2001)

f) where neither the plan sponsor (ex-employer) nor the plan administrator are willing to provide documented justification or even supply the formula for the fee or any further details,

g) where SPD has no mention about any fee structure or disclosure rules thereof, (should the SPD have been clear on fees as mbozek stated ?)

h) and DOL wants ME to approach other agencies (ASPA) to determine if fees are excessive, and then use a lawyer.

(3) If employer (plan sponsor) does have any feduciary duty (as per R.Butler), all they did after I complained was to telephonically admit on not keeping me informed but refused to share any blame. I would surely have prefered having been told in advance that this plan is too small with respect to base administrative expenses which may increase to the range $xxx-$yyy unless you rollover/distribute it elsewhere.

(4) As the losses mentioned are fees and thus in violation of the law (as per mbozek), what documentary evidence will hold (I have emails) if TPA does not supply anything further ? Also in this case am I fighting to recover excess fees (the original intent) or the cost of deception therein with failure of fiduciary duties on the part of TPA & sponsor ?

(5) Coming to the issue of cost-benefit, and the helpful quote from DOL auditor by R.Butler on $10k min limit, I am sure that a vast number of small company participants could fall below such limit to benefit from DOL's help which sounds extremely discouraging. I tried to explain to DOL that I would like to avoid hiring a lawyer and seek their help if possible since the cost of pursuing this legally could outweigh any favorable outcome, and what if it were unfavorable ?

To some extent I feel inclined to follow the legal option just to fight the injustice, as a last option, but have no estimates on its costs. To me it seems a clear case of deception but do not wish to be canned shut due to some loopholes, and out of much more monies in the process.

What does the group opine on these ?

Thanks.

[mbozek]

Dept of Labor Regs ( 29 CFR 2550-408c-2) require that any fes paid by a plan to a service provider be reasonable. There is no definitive answer to what is reasonable but one can look to comparable services provided by other Plan administrators ( TPA). Maybe ASPA can provide comparable fees. Clearly listing the fees as losses and the evasive response to your inquiries creates an inference that the fees may mot be justified under existing law and a plan cannot pay an unreasonable fee just because the plan document does not forbid the payment of fees by the plan. Also the existing case law holds that a plan sponsor who does not disclose the payment of otherwise permissible fees or expenses to plan participants in the SPD has breached a fiduciary duty and can be liable for the amount of the expenses.

You have only two possible remedies:1. go to the Dept of Labor in Washington DC with your claim but they do not seem inclined to conduct an investigation. 2. Hire a lawyer and bring an action against the employer and fiduciary if the plan denies you claim for a refund.

[actuarysmith]

I agree with the last post.

However, you need to ask yourself are the benefits worth the cost of engaging an attorney? Based upon the amount of money we are talking about - it is probably not worth it.

Also, one of my earlier posts seemed to have been interpreted as saying that someone is tryiing to "hide" fees or something.

I did not mean to imply anything of the kind.

All of the plan sponsors that we work with are very careful to only charge expenses to the plan trust that are reasonable, and allowed by DOL / IRS rules and regs. I believe that most plan sponsors operate the same way.

I wish you the best of luck with whatever you choose to do on this matter.

I'll bet you never imagined that your "innocent question" would generate so much healthy dialogue............

[Guest wtitus]

I agree with Actuarysmith to some extent. While there systems may not track expenses in a seperate bucket, they should be disclosed and probably are under the plan document (although they may not be specific $s).

I am not sure if you read the plan document, but most participants have never read the plan document and is why most participants are clueless when it comes to understanding how expenses are treated. Sounds like you have a small plan where the expenses are shared amongst the participants and given your situation in withdrawing the funds, you just happened to notice the expense flow through. My guess is that the expenses have always been there. This is why a 401k with low expense ratio is a must...most employers aren't too concerned with this if the participants are sharing expenses, but these have significant impact on investment performance.

[mbozek]

Most participants are not encouraged to review plan documents and second most participants would not know where to find the provisions on plan expenses in these cumbersome, opaquely worded documents written by inarticulate lawyers. This is why the dol regs require that expenses be disclosed in the SPD. However, there is legal precedent that an employer cannot take permissible expenses listed in a plan if the expenses are not disclosed to participants. Also expenses permitted under the plan must be reasonable-- A 6 % fee for admin of a plan is not likely to be reasonable under Dol reg 2550.408c-2. An employer cannot just wack up any plan admin expenses charged by a TPA among the plan participants to avoid paying the expenses-- There is a fiduciary responsibilty to determine whether the fees are reasonable as well as permitted under the terms of the plan.

[Kirk Maldonado]

Do you have a ready cite for your proposition that:

However, there is legal precedent that an employer cannot take permissible expenses listed in a plan if the expenses are not disclosed to participants?

[Guest death and taxes]

Since the administrator charged fees for several quarters all at once, is it posssible that your account bore more than it should have due to other participants being paid out before their account was charged? If the administrator had been timely in charging the accounts, it is possible that your "loss" wouldn't be as great. This sounds like a breach of fiduciary duty.

[mbozek]

Corely v. Hecht Co., 530 F Supp 1155 -Failure to disclose to participants that employer advances to cover group LI premiums in a contributory plan were to be repaid to employer from future dividends was a breach of fiduciary duty. Also see Pegram v. Herdrich, 120 S. Ct. 2143, 2154, N. 8 for dicta on this issue.

[Kirk Maldonado]

The point raised by Death and Taxes could hurt, instead of help, you. Specifically, if the adminstrative fees were spread over the account balances of a number of participants who weren't in the plan for all of the prior quarters, they shouldn't get a full allocation of the prior expenses. Thus, this could cause the amount allocated to your account to increase.

[Guest death and taxes]

I agree with Kirk. I was thinking that perhaps you were paying for distributions of participants who were paid out before fees were taken. Participants could have received a benefit without having any fees taken out of their balance since the fee charge was so delinquent. If distribution calculation fees are part of the fees charged, you are now sharing in the fees that should have been allocated to those people who have already been paid.

[Guest ennemm]

Update: I have persuaded DOL to take some interest after posing some questions thanks to helpful suggestions from many of you, though I do not know how what level of help I can expect.

After I sent DOL the last quarterly statement, the one with a lump sum fee deduction shown as "loss", and also the emails from TPA stating those are admin fees AND are being shown as losses because "that is the way they list them" and that "they are not required to inform me on any fees", DOL asked for more info including earlier quarterly statements and the details on the money market fund in question including past performance, fees and the contact person for the fund etc. which I gladly faxed. DOL personnel do seem stretched out in terms of workload, or so was the impression I was given.

Death And Taxes, the plan sponsor only telephonically admitted that "they did not communicate well to participants" but stopped there, refusing to share any blame or admitting any breach of fiduciary duty. My main gripe was just that since I could have easily rolled over my 401k last year itself with advance knowledge on impending fee deduction. Kirk Maldonado's point on fee spread on shrunk participant group may well be the fact. I revisited the SPD which seems absolutely devoid of any mention of fees.

MBOZEK, thanks for further pointers to DOL regs on fees and on employers' duties on disclosure. Though DOL process is slow, at least they seem somewhat interested. Is it advisable to attempt filing a claim with TPA/sponsor at this juncture or just wait for DOL to act / conclude ?

[Guest death and taxes]

I hope you get some action from the DOL. These things are slow, though. My thought regarding breach of fiduciary duty is that, for example, the plan has 25 participants on 1/1/01 and 10 people are paid benefits by 6/30/02; the admin discovers no fees have been charged for 18 months and assesses all past fees on the 6/30/02 valuation; you then request your benefit and have been charged fees which should have been shared by the 10 people who have already received their benefit. It isn't in the best interest of the remaining participants to shoulder all of the expenses of the participants who were paid without paying fees. I think that consistutes breach of fiduciary duty.

[mbozek]

You have nothing to lose by filing a cliam with Plan admin. Indeed I dont think they will be inclined to turn you down because they will have to state the reason for deducting the fee in writing and cite the plan provison that justifies such a fee and the denial could beused by the DOL in any investigation of the plan. It is more likely that the Plan Admin will try to avoid having to make a decision but all claims must generally be answered in 120 days.

[Guest ennemm]

The Final (Penultimate?) Chapter:

DOL, in its investigation repeatedly asked for my SSN (as they

kept losing or used wrong ones for some reason!) to find info on

my money market fund acct and also took down the contact# for TPA

etc, but concluded that they can do nothing, reportedly based on

this letter from TPA to DOL:

[color=green]Per your request, this letter will provide you with an explanationfor the loss showing on Mr.(myname)'s June 30,2002 statement of account.Our corporation provides administrative services for the abovereferenced plan. The plan incurs a fee in the mount of $3000/yearfor these services. The corporation paid all of the fees prior to7/1/2001, they were not paid out of the plan assets. per the employer'sinstructions and in accordance with the terms of the plan, the adminfees incurred from 7/1/2001 were deducted from plan assets as per:  Invoice period   Amount Deducted On07/1/01-09/30/01     $750   4/1/0210/1/01-12/30/01     $750   4/1/0201/1/02-03/30/02     $750   4/1/0204/1/02-06/30/02     $750   4/1/0207/1/02-10/30/02     $750   7/3/02These fees were deducted from participant accts on pro-rata basisbased on acct balance. On 3/31/2002 plan assets were $51092 andMr.(myname)'s acct balance was $17264, so the deduction of $1012showing on his 6/30/2002 statement are accurate.Pl note that these admin fees and expense rations of the mutual fundsthemselves were the only expenses that are deducted from plan assets.This plan also receives Investment Advisory services, and these feesare paid from the corporation.[/color]

As far as showing of deduction as loss instead of fees on acct

statement, DOL bought into the TPA's explanation that "TPA's

software does it that way" !

DOL did not think that $3k fees on 51K assets were excessive (6%!)

But advised me to seek an attorney to fight it in court if I wanted to.

Basically the shrinking pot theory was proved.

DOL agent said, the decision was made by her supervisors: case is closed.

They were not willing to discuss anything as to:

a) how did the employer's instructions to deduct retroactively are

"in accordance with the terms of the plan" ?

b) how come no notice of impending deductions was conveyed to the participants ?

A Question: What if everyone had started withdrawing and I were the

only (unlucky) participant with assets of $3000 left on 4/1/2002:

would I have lost my whole 401k account to these whimsical retroactive

deductions ?

[2muchstress]

As a TPA, I will save this letter and use it every time the DOL asks about administrative fees paid from the plan. If it worked once, it should work again.

As a person, that really SUCKS!!

[pmacduff]

I'm looking at your chart, I assume that the dates are wrong at the bottom...shouldn't it be 2002? Otherwise, in addition to 6% you also paid twice for the 07/01/2001 - 09/30/2001 period, right?

[Guest ennemm]

My apologies (I manually typed it as it was a fax).

pmacduff, you are right. I just corrected the dates.

All the year fields in the table except those of invoice

period of first two lines were incorrect and are corrected

to be '02. Same with those in the paragraph following the

table. Thanks for pointing this out.

[MGB]

On the one hand, I have sympathy for your dismay. However, what this also shows is that the vast majority of the public does not know how expensive it is to administer these plans. Most participants get a "free ride" with the employer always paying these fees. It is just too bad that there is a minimum level of fees that are required, no matter how small the group is and that when it is allocated to the participants, that results in hefty individual amounts.

If everyone allocated the fees to the participants, there would be a huge walking away from using 401(k) plans (even with the tax advantages) and a shift towards investing directly in the market.

Those of us active in lobbying and working with Congress on new laws constantly stress the need for simplification. Congress has continually (for 2 decades) overlaid more and more complex rules on all retirement plans resulting in this high-fee situation. For many employers that can't afford to shoulder the fees, it means that they also do not offer any plan at all because they realize it would be absurd to pass on this level of fees to the participants (less than 50% of workers have any access to any type of plan).

We are about to get hit with another big layer of administrative burdens, with additional fees becoming necessary as Congress passes another pension reform act this fall. I only see it getting worse before it gets better (if ever).

And then if we "privatize" Social Security, you will be able to watch that account get fee deductions, too. The investment community is paying big campaign donations to see this happen.

[mbozek]

I fail to see how the admininstration of a plan for three participants which is invested in money market funds could generate $3000 in fees a year. Maybe some one could tell me how many hours is required to do the administrative work involved ( and describe what admin is really required other than a quarterly statement). By the way what do TPAs charge as an hourly fee? At $100 an hours thats 30 hours of work. ERISA only allows the payment of reasonable fees. It appears to me that the fiduciary did not do proper due dilligence in reviewing the fees and merely decided to pass them along to the participants who as a captive audience had no choice. This is the usual pattern when the fiduciary is also the owner of the business. There is no reason to maintain a qualified plan which has such an outrageous fee structure when an employer can establish a SEP or simple or just allow participants to establish their own IRAs. Investing directly in the market is not a bad option when you consider the that trades can be made for $10-15 each with no admin fees and capital gain for sales. Also the funds are available when you want it. But if it any consolation, the employees of Enron were screwed even more than ennemm.

[BFree]

$3,000 for a terminating plan adds up pretty fast...

document updates, quarterly statements, 5500s, distribution packets to all those already paid, participant inquiries, uncooperative employer all add time

many TPAs charge more than $100/hour

[pmacduff]

I don't have a problem with the Sponsor/Administrator paying the administration fees from the plan...what I have a problem with is one of ennemm's points (I think)...that once it was decided to begin paying admin fees from plan assets, they went back and deducted for the prior 9 months (3 quarters) admin fees and then began deducting at the start of each period. I think if the Plan Administrator/Trustees decided to begin paying fees from the plan on 07/01/01, then that's when they should have started. The fees would have come out evenly (dollar cost averaging works both ways, deposits and expenses). If, for some reason between the Employer, Investment firm, etc. wires got crossed and the fee deductions weren't initiated when they were supposed to be, I think that the fee deductions should have started at that point, not retroactively. If the Sponsor was that concerned about the fees, it would have seen to it that the deductions started July 1, 2001.

[mbozek]

BFREE: arent the most of processes you describe automated and entered on a data base to minimize the time? Secondly arent many of the expenses you mention, e.g., benefit packets, participant inquiries, distribution requests settlor expenses that cannot be charged to the plan? Q are 5500 costs a settlor obligation because it must be filed by the sponsor? I dont think plan can charge the employee to receive a benefit plan statement that is required to be given by law. The cost of document revisions can be passed along only if they affect the plans qualfied status. I think the problem is that some employers are trying to pass off all of the costs of operating their plans to their employees without regard to the DOL rules and dont whan to be responsible for any costs.

[Guest ennemm]

MGB, free ride or not, my credit cards and banks always

inform me ahead of time of any changes in fee structure etc by a

"change in terms of agreement" that allows me to vote with my feet

if I don't like what I see coming. Why no such luck here ?

Why is an omitted fee structure and/or governing rules equate

to pretty much anything being allowed ? I have no problem with

any amount of fees, provided a reasonable prior notice and an

option to move out is there.

Also, what is with these retroactive fee deductions also being in

accordance, just because the plan sponsor authorized it ?

This is like banks charging you a fall below fee for past 10

years by retroactively changing the minimum balance required

to 100K for those years.

mbozek, the number of participants has not been disclosed (could

be more than 3), just that my share of the assets was about a third of

the total, has been revealed. Also, assets other than mine may have been

in accounts other than a money market fund (said my plan sponsor once)

What riled me was, that I had been patting myself on the back for

being astute in holding the 401k assets in cash acct, thereby avoiding

the negative returns that others (elsewhere) were experiencing, and

then I get smacked with this.

BFree, I can see how fees add up, but isn't a terminating plan

and its TPA akin to a company about to file bankruptcy and its CFO

(substitute CEO/COO etc) ? Company dying ? hmmm.... don't I deserve

that 0% loan ?

2muchstress, TPA's letter to DOL is so lame, in that it does

not even state the plan assets at each quartile -- as death and taxes

suggested, the burden should have been shared by exited participants

of previous quartiles as well.

I had asked DOL in writing on fees being shown as losses which

finds no mention in TPA's letter and instead DOL just bought

that verbal explanation from TPA that, thats how their software

works, notwithstanding that a "fees" column exists right above

the losses -- maybe I am not supposed to understand such

accounting intricacies ?

[mbozek]

ennemm: YOu should ask for a copy of the 5500 form the period in question, e.g. 2001 plan year if the plan was maintained on a calender year, to see what was reported as plan expenses to the DOL. Calender year 5500 must be filed by Oct 15, 2002. If expenses were not reported for any part of 2001 year then the participants should not be charged. A participant has the right to receive a copy of the 5500 form from the plan administrator. Also 5500 will tell you how many participants the plan had.

I have had several clients who though that they were doing the right thing by moving into safe investments in their 401(k) plan only to find out that their account balances were being reduced for plan charges passed along by the employer. Unlike an IRA owner, qualified plan participants are a captive audience for this kind of thing because they cannot transfer the funds while employed. Best advice to a former particpant is to rollover the account balance to an IRA as soon as possible to avoid such charges.

[BFree]

Let me clarify what I did not say - I am not justifying paying the fees out of the plan; I am noting that the fee amount noted is not out in the stratosphere as some have suggested.

(And after the client requests and given a detailed description of the DOLs position on settlor expenses, we will charge them for it)

As far as getting into the nitty gritty of databases and automated processes - well, I don't know what exactly my lawyer or plumber does, but I pay their fees after agreeing to pay them. I wholeheartedly agree with the points made about it being the plan sponsor's responsibility to review fees on an ongoing basis.

I don't know what ennemm was asking in that last post. A point we, as TPAs, like to emphasize to both participants and employers is that nothing is free. In fact, terminating a plan creates additional costs above and beyond regular annual administration.

[R. Butler]

"...Secondly arent many of the expenses you mention, e.g., benefit packets, participant inquiries, distribution requests settlor expenses that cannot be charged to the plan? Q are 5500 costs a settlor obligation because it must be filed by the sponsor?..."

I would disagree that any of these expenses are settlor expenses. Settlor expenses are not expenses incurred becasue the Plan Sponsor is meeting a DOL/IRS requirement, but rather just the opposite. A settlor expense results from voluntary acts of the Plan Sponsor (i.e. Establishment or termination of Plan, design studies, voluntary amendments, etc.) Assuming the fees are reasonable, I don't see why all of the expenses BFree lists could not be properly charged to the Plan.