Charging Fees to Some Participants' Accounts

[LCARUSI]

Question Posted by HOCKEYAMY:

Do you think you can charge term vesteds account maintanence fees but pay for them (not with plan assets) for actives. Since it is not in the plan I dont think we have right benefits and features to worry about.

[LCARUSI]

The following excellent analysis was provided by David Shipp:

Following is the section dealing with significant detriments to

participant consent from the QJSA Chapter of the Employee Plans Examination

Guidelines in the Internal Revenue Manual. (Although this is in the QJSA

guidelines, it is dealing with consent under 411(a)(11).)

"Sub-Section 932: Significant Detriment

A participant's consent to a distribution is not valid if a significant

detriment is imposed under the plan on the participant for not consenting

to a distribution.

A significant detriment is created where a participant electing to defer

receipt of a distribution is treated less favorably than other plan

participants. The determination of what is a significant detriment to the

participant is a facts and circumstances determination.

One factor to consider would be whether the employer has a valid business reason for the disparate treatment between former participants and active participants.

Disparate treatment between former participants and participants may result

in a significant detriment to former participants.

For example, the plan provides for immediate distributions upon termination of employment, but former participants electing to defer receipt of the distribution are not able to receive a distribution until they reach age 65."

Based on the above, I would find it "iffy" to charge terminated participants for plan expense but not charge active participants.

Admittedly the issue is a facts and circumstances determination, but I

don't think I'd be comfortable with an IRS agent's determination on audit.

Hope this helps.

[QDROphile]

I advise against different treatment on charges to or for accounts, but the IRS issues determination letters when the different treatment is spelled out in the plan document.