Plan Expenses

[Guest Lex]

A 401(k) plan has employer stock as a frozen investment option. This stock is not publically traded. Therefore, the company has an appraisal performed. Only a portion of the plan participants have money invested in the stock.

Is the cost of the appraisal a legitimate plan expense? If so, should it only be paid from the accounts attributable to those holding stock- or from all participants pro-rata?

[Guest Tbrown]

I wouldn't think that this would be a normal recurring expense that could be charged to the plan. Since it must be a closely held company, wouldn't the corporation have to get it appraised every year for possible tax purposes for the share-holders?

[Guest Lex]

True- they are looking to assess a portion of the appraisal cost to the plan- i.e. 50% of the stock is in the plan-they want to charge the plan 50% of the cost.

[Kirk Maldonado]

You might want to review the infamous information letter that the DOL issued to me on the payment of plan expenses. That was one of the specific questions that I posed to the DOL.

[mbozek]

IRS Rev. rule 80-155 requires dc plans to obtain a valuation of all assets held by the trust at least once a year on a specified inventory date in accordance with a consistent method that is uniformly applied. Eg., if the plan owned Real estate, a valuation would be required. For publicly held securites, the valuation on a particular date is sufficient. The question is whether the issuer would be required to obtain a valuation even if the stock was not held in the plan. If so, then the cost of the appraisal would not be required to fulfill the IRS requirement of Rev. Rule 80-155 but would be a settlor expense. If the appraisal is a plan expense then it should only be apportioned among the participants who own the stock -- there is no basis to charge other participants if they do not own the asset. This is similar to expense charges for owning a particular mutual fund-- the persons who invest in the fund pay for the cost of maintaining the fund.