Banks charging fees to their own plan

[Guest jsample]

A local bank has just purchased a local recordkeeping firm. The recordkeeping frim currently does the administration for the bank's 401k plan. Can the TPA still invoice the bank for administration of the 401(k) plan now that the bank owns the TPA?

Does it make a difference if the bank pays the fees directly or if the bank has the fees deducted from the trust?

Thank you.

[E as in ERISA]

It's easier if the bank pays the costs directly. If they go through the plan, then they are subject to the prohibited transaction rules and the fees probably have to change because the plan can only pay the bank for the direct costs (no overhead and no profits).

[IRC401]

I once had a bank client that charged its standard trust fees for acting as trustee of its own plan. The DoL made them refund the fees. [No, I didn't advise them to charge the fees in the first place.]

[maverick]

A few years ago I worked for a bank that administered its own plan, and charged participants standard trust/admin fees. The DOL came in and made them refund fees (and back interest) going back several years. Everyone who had been paid out had to be made whole as well. Fortunately, I wasn't involved with this arrangement. The head trust officer definitely liked taking care of the bank's plan, since the fees made up a large part of the trust dept's income.

When the D.O.L. asked about this his answer was "oops."

Maverick

p.s. What Katherine said is correct, okay to administer for cost/overhead but no profit. The DOL guy said we would have to start tracking the time each bank employee spent on the bank plan in a detailed log. BTW, as soon as the auditors left, the bank started paying the fees "outside" of the plan.