Plan Loans

[Guest caseyb]

I am proposing adding a loan feature to our plan, and have received a couple of questions about setup that I'm not 100% sure (very creative boss):

1. Can a portion of the loan processing fee charged by the recordkeeper be given back to the plan sponsor for plan use, such as education programs? My first instinct is NO - and not a good employee relations issue either when they find out a portion of the fee went back to their employer

2. Can we set a maximum allowable loan request, less than the $50k cap? I know there's a minimum allowable threshhold of $1,000 but not sure about a maximum.

Thank you and Happy Friday!

[ERISAnut]

Answer to your first question is NO. You cannot have kickbacks.

To your second, yes. You can have a plan provision restricting all loans to a maximum of $10,000 if you wanted to. $50,000 less the highest outstanding loan balance over the past 12 months. (Intentionally did not give details of 72(p) is order answer direct question.

[JanetM]

The fee charged for loans should be covering the TPAs cost to administer the loan. You can pick any amount for max loan amount and the number of loans available.

[GBurns]

Aside from a "kickback" being unlawful, there is the issue of the fee being unreasonable and excessive.

An unreasonable and/or excessive fee raises the issue of fiduciary breach. If you do a Google search on "excessive 104(k) fees" you will seek the many lawsuits etc that this has caused.

The fee proposed would have to be excessive etc if there is enough "overage" to have any to "kickback".

If I remember correctly the last similar case that I saw resulted in a criminal conviction.

[Guest caseyb]

Thanks everyone. One last thing - my TPA charges a $50 processing fee (seems reasonable) and a $50 annual maintenance fee, which seems really high. Anyone have thoughts or a comparison?

[Guest Sieve]

I've seen higher maintenance and set-up fees. Doesn't mean that it's reasonable, but it's certainly not out of the peer group ballpark.

[K2retire]

Thanks everyone. One last thing - my TPA charges a $50 processing fee (seems reasonable) and a $50 annual maintenance fee, which seems really high. Anyone have thoughts or a comparison?

I've seen higher processing fees, but never lower. If you are using a full service, independent TPA, the annual maintenance fee is also what I would expect to see. If you are using the TPA division of a payroll service, that might be on the high end.

[austin3515]

Anyone whose a TPA knows you can't charge enough for loans - you will always lose money or barely break even on loans (particularly in the case of a client who is not diligent in administering the loan payroll deduction process, and particularly if participants are allowed more than one loan outstanding).

I will say this though, we are relying a LOT more on the fund company's automated loan programs and a lot less on flipping through piles of amortization schedules, which has helped us keep our fees down.