Loans and fees

[Guest CAM223]

We have an employer who would like to charge an employee/participant a transaction fee (outside of the plan) for each loan payment that he has to process. This fee would be paid by the employee and would not reduce the loan payment

Under Ohio law he can charge a minimal fee ($3.00) for each child support payment, etc. so he would like to do the same for loan payments that he processes. The participant will pay a loan origination fee as well as an annual accounting fee to us as the plan administrators. Any thoughts on this minimal employer additional fee? Anyone else have experience with this type of fee?

[Guest ScarletKnight]

This may raise some fiduciary duty issues. Plan fiduciaries have a duty to ensure that fees being charged to plan participants are reasonable. The plan's fiduciaries will have to assess whether a $3 fee is reasonable, and whether paying a fee to the employer at all (when fees are already being paid to the TPA) is reasonable. The plan's fiduciaries must be careful to act in the best interest of plan participants. Accordingly, it would be helpful if the employer could show some expense resulting from each loan payment that would merit a $3 fee per participant.

[E as in ERISA]

I assume that you'd want to comply with the rule that only allows you to charge for direct expenses -- so the employer would have to substantiate that it costs him $3 per payment.

[Guest CAM223]

I assume that any employer could easily justify the costs of extra checks, bookkeeping expense, payroll company charges etc. for the fee. We have never had such a request from any employer and wanted to see if others had addressed this issue. The expenses that we charge for administration are entirely different than those of the employer.

[FundeK]

What about the cost of overnighting a loan check? Can you deduct the cost (participant chooses) of Fed Ex from a retirement plan account? It just doesn't seem right to me!

[Demosthenes]

So the employer wants to charge his participants 3 bucks each time a participant makes a payroll deduction loan payment? Or is it 3 bucks each time the participant sends in a check to be sent to the TPA?

If the former that's 36 to 156 bucks a year to repay a loan, if the latter, why is the plan allowing for non-payroll payments?

In either case, it doesn't sound like much of an employee benefit. But, let us know if it works out, couple be a real revenue generator for a plan with a few thousand loans outstanding, at least until the DOL catches up with it.

PS. glad I don't work there, does the employer also charge for pencils and the sugar in the breakroom?

[maverick]

Not that it has anything to do with this thread, but I know someone whose employer mandated direct deposit of payroll. Then he wanted to charge the employees $2.00 each payday. After a near-mutiny, he "re-thought" the idea.

In this case, I'd like to know why the employer wants to charge for each loan payment. If he's trying to discourage plan loans, why not just eliminate them completely?