Charging Plan Transaction Fees to Participants

[Guest Rogers]

Is anyone out there charging transaction fees, such as Distribution Fees, directly to the participants that make the transaction? If so, what types of distribution fees are you charging (i.e. in-service, but no QDRO or Retirement)? Can you provide authority for this?

[LCARUSI]

It's fairly common for sponsors to charge fees to participants for loan setup and/or annual loan maintenance.

I have not personally seen plans where distribution fees, transfer fees or other transaction fees are charged to participants, but I see no reason why you could not do it.

You should be sure the Plan document allows it.

[david shipp]

Based on the DOL Opinion Letter dealing with QDRO expenses (94-32A), the threshhold question is probably "Is the action for which a charge is to be assessed an ERISA-mandated right of the participant?"

In-service withdrawals, loans, participant investment discretion are examples of provisions which plans may provide but that aren't mandated by ERISA. As a result, it would not be improper to charge a participant for expenses incurred in the transaction, as long as they are reasonable.

Retirement benefits are probably a different matter. A participant has a right to his benefits under the plan at "retirement" and the plan probably can't charge a distribution fee for paying retirement benefits. Query - could the plan provide that there is no charge for a base-level of benefit forms but a fee is associated with other optional forms - lump-sum payable by check is free but lump sum payable by wire has a charge?

[LCARUSI]

David -

In general, isn't it allowable for the Sponsor to pass all expenses associated with the operation of the Plan back to participants? And wouldn't this include expenses associated with distributions? (Admittedly, it wouldn't be a good idea from an employee relations point of view to do this.)

[Guest ESOPwizard]

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operation of the Plan back to participants? And wouldn't this include expenses associated

with distributions? (Admittedly, it wouldn't be a good idea from an employee relations point

of view to do this.)>>

There is a difference between charging the plan, which would reduce earnings for all participants

and charging a particular account. I believe that the DoL takes the position that the plan administrator

is not allowed to charge a participant's account for providing services to which a participant has a right

under the law.

As investment returns decline, fees charged to plans will become more of an issue. I recommend that plan

sponsors review fees, including hidden fees, and drop (411(d)(6) permitting) costly and underappreciated features.

[david shipp]

I believe ESOPWizard explains it correctly. Although administative expenses may be paid from plan assets, the crux of the issue is "whose assets?"

The DOL has stated that a particular participant cannot be charged directly for excercising ERISA-mandated rights. Plan assets can, however, still be used to pay for those expenses with the charge allocated to all participants.