Use of Designated Financial Institution

[Guest Donaldson]

IRC § 408(p)(7) provides that if a designated financial institution ("DFI") is used, participants must be notified that a participant's balance may be transferred without cost or penalty to another individual account in accordance with 408(d)(3)(G). Notice 98-4, Q&A J-4 states that a transfer of a participant's balance is "without cost or penalty" if the balance is transferred in a trustee-to-trustee transfer to the financial institution specified by the participant. A transfer is deemed to be without cost or penalty if no liquidation, transaction ... or "similar fee or charge" is imposed with respect to the balance being transferred. Does anyone know whether a DFI is prohibited from charging a fee for in-kind transfers under the above rules? Is there any guidance on this issue? The DFI does not impose a fee for transfers of cash balances. I am aware that a DFI can impose a fee against the employer provided that the employer does not pass on the charge to the employee who requested the transfer of his or her account balance. Q&A J-5. Thank you for your thoughts.

[Gary Lesser]

A fee to transfer the account would not be an annual administrative fee and would be prohibited. See Notice 98-4, Q&A J-4, Examples 1 & 2.

[Guest Donaldson]

Thank you very much.