Small Balance & Distribution Fees

[Guest CindyB]

Question 1: We distributed 100% of a participants account balance. Later they receive a true-up of the employer contribution for less than $10.00. The cost of a check and 1099-R is more than $10.00. Can we forfeit or gain/loss the participants account or do we need to send them another distribution check?

Question 2: Plan has distribution fees of $85.00 charged to the participant the day before a distribution is processed. Do we charge a distribution fee if the participants account is less than $85.00?

If you know the answer to either let me know. Thanks!

[ERISAnut]

Question 1 - The technical answer is that you must always follow the terms of your plan. I am not familiar with any plan provision that would allow of forfeitures of balances merely because they are small. Also, if the balance is forfeited, it would not be eligible for rollover.

Question 2 - This again seems to be a document issue. You should generally follow the governing documents of the plan. To that extent the plan charges an expense of 100% of a participants balance may become a fiduciary issue on fees charged to the participant. I am not given an opinion as to whether this is a fiduciary breach, but it is along that standard that would be applied to answer your question. These scenarios should generally be considered prior to designing the fee agreement.