Plan fees

[Guest taj32z]

Can an Employer reimburse their plan for plan expenses that were initially paid from the plan's asset account?

[Mike Preston]

What kind of plan?

DB? No problem.

DC? There is a series of PLR's, I think that state while the answer is yes, such reimbursements are treated as contributions, subject to the rules on annual additions and on non-discrimination. The annual additions issue isn't much of a problem these days given that the annual additions limitation is 100% of pay. The non-discrimination issue is a bit touchier now that we have the gateway requirement in order to cross-test.

I haven't read the cites in a number of years (maybe somebody else has them handy), but I have always wondered how the IRS got around the fact that such a reimbursement on behalf of any terminated participant's account would necessarily exceed the annual additions limitation, given the fact that compensation would be zero.

[Guest taj32z]

The plan is a straight forward profit sharing plan. The employer typically pays for plan expenses ie: fees for TPA. Due to what they thought was going to be a bad year they paid the expense from plan assets. Turns out the year wasn't so bad and now they want to reimburse the plan for the fee.

[MGB]

Isn't there an issue under DOL rules concerning the plan extending credit to the employer? By first paying them from plan assets and later reimbursing, this is the same as a loan from the plan and could constitute a prohibited transaction.

[david rigby]

Probably should start by reviewing the plan document provisions related to payment of expenses, not just what the employer typically does.