Loan Fees on SPD

[Guest KJSpaeth]

Do loan fees have to be included on an SPD?

Thank you.

[Archimage]

No, but they should be included in the loan policy.

[IRC401]

I recommend putting a warning in the SPD that there will (or at least may) be loan fees.

[mbozek]

I though that under the revised SPD regs 2520.102-3(l) fees and expenses on an individual account are required for plan years beginning Jan 1, 2003. This would include fees relating to investments.

[Kirk Maldonado]

While I think that the fee should be disclosed in the SPD, I'm not certain that is literally required by the precise wording of the regulation. Here is the relevant portion:

Plans also shall include a summary of any provisions that

may result in the imposition of a fee or charge on a participant or

beneficiary, or on an individual account thereof, the payment of which is a condition to the receipt of benefits under the plan.

I believe that this language is aimed at the sitaution where the plan charges the participant a distribution fee in connection with the payment of benefits.

I don't believe that this language is so broad as to sweep into its coverage the payment of any plan administrative expense. Believe me, I know from personal experience that the DOL knows how to draft broad language about paying administrative expenses out of plan assets.

[R. Butler]

We consulted 4 different attorneys on 2520.102-3(l). Each stated that a broad statement to the effect that administrative expenses may be paid out of plan assets unless paid by the employer would be sufficient.

We include the same broad statement in every SPD regardless of whether expenses are currently being charged to the Plan or participants. We do add a few sentences giving a broad definition of administrative expenses, but it is broad and all encompassing. We do not specifically mention loan fees, distribution fees, etc.

We do recommend that all participants requesting a loan be given a copy of the loan document. That document specifically lists applicable fees.

Kirk, if 2520.102-3(l) refers to distribution fees does that mean that such fees are permissable. I don't have a strong opinion on it, but I've seen arguments both ways on the DOL's position on distribution fees.

[Kirk Maldonado]

RButler:

The DOL informally states that those fees are impermissible, but has not taken a formal position on this issue, despite the fact that (my understanding is that) an application for an Advisory Opinion was submitted on this point a while ago. I think that the DOL is wrong on this issue.

[mbozek]

Could some one please reconcile the position of the DOL in the SPD regs that a description of fees and charges which are condition of receipt of benfits be described in the SPD with the DOL position in Opinion ltr 94-32A that a plan may not encumber the exercise of a right mandated by ERISA to recieve a benefit by imposing conditions on the exercise of the right that are not contemplated by the statute. E.g., plan cannot impose fees on a participant's account for the review of a QDRO because the alternate payee has a statutory right to receive a deistribiton under a QDRO. If a particpant has a statutory right to receive benefits payable under a plan how can such a right be encumbered with a charge for the exercise of such a right without violating ERISA?

[Kirk Maldonado]

By admitting you do that, then that makes it easier for the DOL to find the employer and harass them on this issue.

It makes perfect sense from the DOL's perspective; you get employers to voluntarily confess in writing that they have sinned.

That's like the tax that they used to impose on the possession of illegal drugs. If you paid the tax, you automatically admitted that you possessed illegal drugs.