Participant Distribution Fees

[Guest cmp1454]

I'm looking for information on what others charge for qualified retirement plan distribution fees (Terminations, Retirements, Death, Disability, In-Service, Hardship Withdrawals, etc.) from Defined Contribution Plans: 1) How much do you charge, 2) for smaller distributions equal to or less than the distribution fee, do you just have a fee transaction with no distribution made, or, do you waive the fee on small amounts. If you do waive fees on smaller amounts, what is the minimum dollar amount used, 3) Do you charge more for Roth distributions? Thanks for your feedback!

[K2retire]

I expect you'll find reluctance to mention specific amounts on this board.

I can tell you that we have 2 distribution fees: the one for hardships and loans is 50% more than the one for everything else. I believe that is intended to discourage participants from taking those types of distributions.

We also waive the fee (except for hardships and loans) if the account balance is less than twice the fee amount.

[J Simmons]

I expect you'll find reluctance to mention specific amounts on this board.

I can tell you that we have 2 distribution fees: the one for hardships and loans is 50% more than the one for everything else. I believe that is intended to discourage participants from taking those types of distributions.

We also waive the fee (except for hardships and loans) if the account balance is less than twice the fee amount.

If that's the driver for the 2x charge, is it prudent and solely in the best interests of the participants for the plan fiduciaries to use that service?

[Guest cmp1454]

I expect you'll find reluctance to mention specific amounts on this board.

I can tell you that we have 2 distribution fees: the one for hardships and loans is 50% more than the one for everything else. I believe that is intended to discourage participants from taking those types of distributions.

We also waive the fee (except for hardships and loans) if the account balance is less than twice the fee amount.

If that's the driver for the 2x charge, is it prudent and solely in the best interests of the participants for the plan fiduciaries to use that service?

Thanks for the feedback thus far. I'm interested in hearing if others apply fee waivers to small balances.

[K2retire]

If that's the driver for the 2x charge, is it prudent and solely in the best interests of the participants for the plan fiduciaries to use that service?

It is only a guess on my part as to the reasoning, and regardless of what it was, I'm certain that has never been communicated to a plan sponsor in that manner. But I have asked myself many times if a prudent fiduciary would agree to various terms that we have. (I've also asked myself how long I can justify staying in this job if I feel that way, but that's another story.)

[Jim Chad]

The higher fee might well be for more time explaining issues and procedures for hardship and loan. I have thought about charging more for hardships because of these experiences. I do charge more for loans.

I do not waive or decrease my fee for small accounts. and if the account is smaller than my fee I charge an account closing fee equal to the account balance.

[GMK]

FWIW, I have generally seen fee schedules that vary by type of distribution (loan, hardship, closing). The differences appear to be based on how much administrative work is involved in each type of distribution.

And more often than not, closing fees are not waived for accounts with small balances. (Edit: Typically, Jim Chad's approach is used.) It takes about as much work to close a small account as a big one. The Plan Sponsor may choose to pay closing fees (for everyone, of course) to promote good will.

Plan sponsors also have to decide if they need to include loan and hardship withdrawal options in order to attract and retain good employees in their labor market. My vote would be to keep the retirement plan for retirement only and leave the loan business to others, but you have to decide what best meets your needs.