Charging Administrative Expenses Against Plan Assets

[Guest L]

Company would like to have the plan pay the cost of a vendor search (being done by an outside consultant). Is that permissable?

Also, does company have any flexibility to spread the recognition of the expense over a period of time rather than take the entire hit at the point in time when the bill arrives?

[MWeddell]

We've had clients charge the cost of a vendor search against 401(k) plan assets. A Dept. of Labor information letter date 12/1/1997, concluding that fiduciaries have a duty to prudently select plan service providers, strengthens the argument that the costs of performing a vendor search are part of the reasonble costs of administering a plan.

[Jon Chambers]

I'd be careful with charging vendor search costs to the plan. Certain plan operational responsiblities are defined as "settlor" functions, meaning that the sponsor is responsible for them, and costs for these functions shouldn't be charged against plan assets. Plan document drafting costs are one example of a settlor function. Although I can't cite regs, it seems that vendor selection would also be categorized as a settlor responsibility. Just because the DOL wants sponsors to select vendors responsibly, it doesn't necessarily follow that the plan should pay the consultant's fee. I do vendor searches, and the client has never charged my fee against assets. Search fees are typically moderate (in the $5K to $10K range), and most clients typically see a 1 year hard dollar fee reduction of many times this cost, so it makes sense for them to pay search costs from company funds.

Just my opinion however.

------------------