Allowable Plan Administrative Expenses

[Guest Leigh]

My question concerns wether a defined contribution plan can deduct certain expenses from the plan itself or wether these expenses should be deducted by the plan sponsor/employer.

The employer has two plans: a defined contribution plan and a defined benefit plan. Certain participants of the defined benefit plan are allowed to participate in the defined contribution plan. As a result, some of these participants may receive benefits that exceed the section 415 limitations. Expenses such as plan amendment fees, actuary fees, reporting fees, etc. will need to be incurred to determine whether there is a section 415 problem.

Can the plan deduct these expenses or are these expenses more appropriately deductible by the employer/plan sponsor only?

[KIP KRAUS]

Leigh:

What I have typically seen in the past, is that normal expenses for defined benefit plans were deducted from the plan assets. We currently do this on our DB Plan. Normal expenses include items such as actuarail expenses, investment fees, distribution fees and trustee fees. etc..

Other than individual investment management fees, and loan initiation fees, my experience is that the employer pays all other admin. fees outside the plan. A recent survey of 401(k) plans by Charles D. Spencer & Associates, Inc. shows that a majority of employers pay admin. expenses other than loan fees and investment management fees.

[Guest Dook]

All expenses incurred by the plan for section 415 testing would be considered ordinary and reasonable. Therefore they may be paid from the plan assets or, paid and deducted by the employer as a business expense.