Paying expenses from the Plan for daily valuation recordkeeper search

[Guest DeePA]

A 401k plan is currently daily valued. The plan sponsor has decided to do a daily valaution search/comparison to see if their current recordkeeper is up to snuff. An independent third party is the gatekeeper for the search functions. Are the fees to the third party (unrelated FYI) payable from plan forfeitures or do they constitute settlor functions? I tend to think they are payable from the plan, but would like some input.

Also, I assume the decision to do the search , that is any fees related to the decision are not payable from the plan. Agree?

Thanks

Dee

[Jon Chambers]

In my opinion, this is a grey area. I typically advise clients to pay search fees from corporate assets, not plan assets.

One key element to consider is whether recordkeeping/admin costs are currently paid by the plan or by the employer. If the employer is paying recordkeeping/admin costs, and wants to do the search to reduce these costs, then the employer will be using plan assets for its own benefit. If the plan is currently paying these costs, there is a better argument that the search will benefit plan participants, by reducing costs that the plan would otherwise be paying.

[MWeddell]

DOL guidance tells us that plan fiduciaries must prudently select service providers for their retirement plans and periodically monitor whether those selections continue to be prudent. As long as the costs of conducting the search are reasonable, I believe the cost of the search may be charged against plan assets. (Of course, because the expenses are visible to participants, many plan sponsors don't choose to charge them to plan assets.)

[Guest hyper]

I agree with Chambers, this is very gray area. This is my $.02

The sponsor has elected to hire a third party to conduct a search for a recordkeeper. This is a function that could have been performed by the sponsor. So it seems to me that the benefit of using a third party inures to the sponsor, not particiapants. This tells me the fee for the third party review may not be born by the plan.

Now, if the sponsor determines that a change in recordkeepers is needed because the current recordkeeper is subpar, the cost of actually moving to the new recordkeeper may be born by the plan.

All this assumes the plan actually permits expenses to be paid from the trust.

[Brian Gallagher]

My 2 cents:

I would say that the fees (reasonable ones, at least) could be borne by the plan. If the plan sponsors feel that getting the third-party search firm would be in the best interests of the plan and its partipants, it would be okay. A reason could be that the search firm would have access to many more resources than the sponsors would, and that the plan would ultimately benefit from having the pro's do it.