1099 Reporting

[Guest pay]

I am with a TPA firm and am preparing some last minute 1099s. When a participant takes a distribution, a fee is charged against the participant's account. If the distribution goes to the participant, the gross amount is taxed, then the fee and tax are deducted and the net sent to the participant. If the dist. is being rolled, the fee is deducted from the gross and the net is sent to the r/o institution. When preparing the 1099, should the fee amount be included in the gross dist? If the dist was rolled, should a seperate 1099 showing the fee amount as taxable to the participant be prepared? Any help would be greatly appreciated!

[Tom Poje]

who is charging the fee? Supposedly you are not allowed to charge a fee to the participant for distributions. Be careful on this! If it is individually allocated accounts, I realize there are fees assessed by the investment house, but that is a different type of fee. In that case, the 'fee' is more like a loss, hence the distribution is after the distribution. In either caes, I can't imaging the 1099 for more than what the actual distribution is.

[Guest Robert Collins]

I expect that since the fee reduces the amount of the distribution that the net amount is reported on the 1099R. When the funding agency such as an insurance company deducts a withdrawal fee, the reportable amount on the 1099R is reduced by the amont of the withdrawal fee.

[Wessex]

What sort of fee is being charged? I have heard of increasing numbers of providers charging or contemplating charging check processing fees to participants who receive distributions. I have always "understood" that this was not an appropriate fee. The only place that I have ever seen this officially addressed, however, is in PLR 8833043 dealing with whether a distribution was eligible for rollover. (I have never explicitly researched the issue, so there may be more!) PLR 8833043 provides that:

"The Service notes that the information submitted by you in this case raises issues regarding the reduction of your vested account balance to pay certain plan administrative expenses [a $17.50 check processing fee]. However, such issues pertain to plan qualification under section 401(a) of the Code, and therefore are barred from consideration as part of a private ruling letter."

Does anyone know of anything else dealing with this issue or had experience with the Service on this issue?

[Lynn Campbell]

I have a copy of Pension and Benefits Week dated 5/19/97 in which this is discussed on page 5, related to a meeting of IRS and DOL. Reference is made to ERISA Op Letter No 94-32, and a conclusion seems to be drawn that it is not OK to charge a fee directly to the individual for whom you are processing a payoff distribution.