Use of forfeiture accounts

[Santo Gold]

I think I already know the answer is "no", but I'll ask anyways:

Trustees want to switch to a new investment platform, but face significant surrender fees for doing so. Can they use the forfeiture account to pay these surrender fees? The plan document does allow for forfeitures to be used to pay fees.

Thanks

[Guest Sieve]

The answer is No, based on your Plan document--and maybe it is NO in general for payment of surrender fees. But I certainly could argue that the surrender fees are an administrative expense, and therefore can be taken from forfeitures--so you might want to amend the plan to permit forfeitures to be used to pay administrative expenses.

What I have sometimes have done in these instances--if the employer wants to--is to have the surrender fees taken from the appropriate accounts, and then amend the plan to permit replacing those extracted fees with an employer contribution (deductible) which is allocated to participant accounts exactly as the surrender fees were paid. It would be subject to non-discrimination testing, however.

[K2retire]

Our prototype document doesn't allow for the type of contribution that Larry mentions. But I recall a situation where a plan was merging due to the company being bought out. The CDSC fees were paid to us directly by the purchasing employer.

[Guest Sieve]

The amendment to use forfietures to pay expenses ought not take a plan out of prototype--some, Corbel for instance, offer that as an option in the AA, and some, in the Basic Plan Document, require that fees be paid by the Trust if not paid by the employer. The other amendment I suggested--replacing surrender fees--would take a prototype plan out of prototype.

You might consider taking the position that moving funds, and suffering a surrender fee, is a fiduciary breach, so that an employer replacement of those fees probably would be permissible.

[Fisher]

Why not contact the vendor and see if they will bill the employer directly for the surrender charges. Then it would be a normal business expense and the particpants would be left whole.