Can Employer Pay Plan Fees for One Participant

[Guest msxtrme]

I have a doctor group, where one of the doctors wishes to have the fees for his self-directed account billed to the company and have them paid as a company expense.

I have not read any thing that would prevent this from happening, but I cannot find anything in writing.

On the surface it appears that this would be some type of plan discrimination, but if the company wishes to pay this expense, wouldn't that just be a perk for that doctor?

If anyone has any regulation or documentation, please share...Thanks!

[chris]

Check the plan document. In the provision regarding self-directed accounts, there should be language to the effect that the self-directed account will have its own losses and gains as well as bear its own expenses. If so, then the expenses needed to be charged to the Dr.'s self-directed account.....

[Belgarath]

See 1.401(a)(4)-4 for a discussion of "benefits, rights, and features" and the nondiscrimination issues involved.

[GBurns]

Regardles of what the PD might say there are still the issues of constructive receipt and the deductibility as a business expense.

Having the company pay his expenses would consitute taxable income to the Dr, just as it would have if the company paid his mortgage for him. It is not a legitimate business expense in that it is neither an ordinary and necessary expense of the business related to the business of the company. Personal expenses of employees/owners/officers are not deductible to the business as such and are taxable income to the employee/owner/officer.

[mbozek]

What kind of fees are to be paid by the er? If the fees are the annual admin fees to maintain the account and the er pays similar fees for other participants then there should be no problem in deducting the payments. Reg.1.404(a)-3(d). If the payments are for brokerage costs and loads then the payments will be included as contributions to the plan under 415. RR 86-142. Investment mgt fees are deductible by the employer and are not considered part of the contribution to the plan. PLR 9252029

[Guest msxtrme]

Thanks for all of the responses...this is a big help.

Mbozek.....the fees are plan administration fees and trustee fees.

[Kirk Maldonado]

Gburns:

Pertaining to the employer's payment of the trustee's fees and plan administration fees on behalf of one participant, you said:

It is not a legitimate business expense in that it is neither an ordinary and necessary expense of the business related to the business of the company.

Are you saying that if the employer paid those expenses on behalf of all of the participants in the plan the payment would not be deductible? I just want some clarification as to your position.

[could be me maybe not]

Hey Georgie:

Are you going to admit to a blanket misstatement or are you going to try and squirm out of this one? I'd suggest the former. We can all make misstatements, so a retraction would be fine IMHO, but if you are going to both annoy people and spout false information then it would outweigh your entertainment value.

[Guest TAG]

I do not do nor do I plan to do pension administration or anything that he plans to do. I have all I need for what I do, the people that I represent, and those that I represent them before.

It is not a legitimate business expense in that it is neither an ordinary and necessary expense of the business related to the business of the company.

GBurns,

Are you sure about this? Does lunch count?

TAG

[GBurns]

Kirk,

If the employer made the paying of those expenses for all of the participating employees part of the Plan then it would become a business expense. If however, as implied in the post, the employer selectively pays the expenses for only 1 of the employees and not the other and it is not so stated in the Plan, then it is not a business expense. Note the terms you used in your last post "on behalf of one participant" versus "all of the participants in the plan ".

TAG

Lunch for an employee is not a business expense unless it meets the conditions set by the IRS.

TAG and could be

Read IRS pubs 525 and 535, the actual IRC and Treas Regs would be too much to ask of you. Those should give you enough basic knowledge to make a useful comment next time.

[E as in ERISA]

I don't understand some of these comments. Is there a suggestion that if the company pays one participant's plan expenses, then that is always still a valid deductible business expense for the company? I think that if the company pays it for all employees then it is valid and deductible. But if they are only paying them for one, then they are probably not going to want to characterize it as a plan-related expense or they run into the discrimination questions. So I'd think that they'd probably want to end up characterizing it in such a way that would make it taxable to the participant and/or nondeductible by the business.

[FundeK]

Wow, such aggressiveness from some....

When I first read the post

where one of the doctors wishes to have the fees for his self-directed account billed to the company and have them paid as a company expense

, I initially took it to mean the participant wanted all of his fees (such as trading fees, maintenance fees, etc) charged to the business, not necessarily plan administration fees and trustee fees. If GBurns read the post the same as I did, his comments

It is not a legitimate business expense in that it is neither an ordinary and necessary expense of the business related to the business of the company. Personal expenses of employees/owners/officers are not deductible to the business as such and are taxable income to the employee/owner/officer

would make alot more sense.

Why don't we let GBurns answer Kirk's post first....

[Guest TAG]

Gburns,

I wasn't trying to be useful. Trying to make a point with you as are many others.

TAG

[could be me maybe not]

Why don't we let GBurns answer Kirk's post first....

OK. We shall wait.

[WDIK]

Why don't we let GBurns answer Kirk's post first....

I thought he did.

Kirk,

If the employer made the paying of those expenses for all of the participating employees part of the Plan then it would become a business expense. If however, as implied in the post, the employer selectively pays the expenses for only 1 of the employees and not the other and it is not so stated in the Plan, then it is not a business expense. Note the terms you used in your last post "on behalf of one participant" versus "all of the participants in the plan ".

[FundeK]

I must have been typing my response as others were posting theirs. I am just too slow, they beat me to it!!

[WDIK]

FundeK's situation is understandable. I just didn't want could be me maybe not to wait indefinitely.

[could be me maybe not]

Thanks WDIK

The silence implies agreement. Everybody agrees with GBurns, right?

[WDIK]

silence implies agreement

Where did that get Sir Thomas More?

[E as in ERISA]

So is anyone making a "retraction"?

[alanm]

I think GBurns is primarily right; except the payment of the fees by the company for the doctor is deductible by the company as a wage under section 162. The Doc should get the fees added to his W2 and pay income taxes. He could possibly get a deduction on his 1040 under misc. deductions subject to the 2% floor, as an investment related expense. However, the plan's issue would be the BRF; since the Doc did not deduct fees from his plan account, it grows at a faster rate tax deferred: a benefit that must be extented to the others subject to 410b. The Doctor in essence negotiated a raise from the employer and the others may not be so lucky; which would mean at the participant's descretion, fees would be paid by the company and deducted from the employees paycheck, after tax.