Loan fees and Schedule C

[dmwe]

If a one-time loan administration fee of $300 comes out of the proceeds of a participant loan, and all of those loan fees add up to more than $5,000, is it reported as "service provider" income on Schedule C.

I think it is but the outside auditor doing the 5500 audit says it's an transaction outside of the plan between the borrower and the service provider and since the total amount borrowed will be repaid into the plan it should not be reported as fees coming out of the plan.

My feeling is that Schedule C is about service provider income and not necessarily the financial impact of fees to the plans overall assets.

Which way should I go? I'm thinking if I report it on Schedule C it would not tie to any numbers on Schedule H because it's not a fee that affects gains/losses in the plan. Maybe it's just a footnote on the audit report.

[Guest Form5500]

For the 2008PY Form 5500 you do not have to report it, but the 2009 Form 5500 changes all of that. In November 2007, the Department of Labor’s (DOL) Employee Benefit Security Administration (EBSA) posted final regulations that included the 2009 forms and schedules, and one major overhaul that is causing a stir in the investment and service-provider community is the revisions to the Schedule C (Service Provider Information).

The new format is designed to expand reporting of indirect compensation. Persons or entities that provide investment management, recordkeeping, participant communication, and other services to the plan as part of a transaction with the plan are treated as providing services to the plan or its participants for purposes of Schedule C reporting. In other words, it will no longer appear that services are being provided to the plan at no cost (like processing a loan application or the process of reviewing and processing a QDRO). It also means the entries on Schedule C will, in most instances, not directly tie to the amounts shown on line 2i of Schedule H.

You should as your outside auditor to outline for you the new fee reporting rules for the 2009PY. Even thought that Form 5500 is not due for another year, you need to make sure that your vendors/providers are going to be able to provide you the appropriate breakdown next year to complete your Form 5500. Specifically, ask your auditor to describe the difference between reporting direct compensation and indirect compensation and the exception for bundle arrangements.

Hope you found my response helpful. Good luck!

[dmwe]

Thanks. I didn't think anyone was going to respond to that question. I agree with you for 2009 but wasn't sure for 2008.