Surrender Charge Reimbursement

[Guest Rider]

I'm familiar with the notion that if an employer wants to "make the plan whole" for a surrender charge when moving from one financial institution to another, the deposit to the plan is considered a contribution allocated under the terms of the plan document.

But a while back I ran across an article that indicated there has been a change that permits a plan sponsor to reimburse a plan for this type of occurance. Of course I now can't find the article and thus have not been able to verify.

Anyone run across a change in this regards, or am I just a bit askew these days?

[Bird]

Of course I now can't find the article and thus have not been able to verify.

Anyone run across a change in this regards, or am I just a bit askew these days?

Boy do I know that feeling.

I'm not sure about anything new, but as far as I know, the only time this would be permitted not as a contribution would be in the case of a trustee breach (I'm not sure if that's the right word but the idea is that it's the trustee's fault that there is a surrender charge).

[QDROphile]

You may be thinking about Rev. Rul. 2002-45, involving a breach of fiduciary duty.

[Peter Gulia]

The rule is 26 C.F.R. 1.415©-1(b)(2)(ii)©. A "restorative payment" made to restore a plan's losses if there was a reasonable risk of fiduciary liability is not an annual addition. Conversely, paying up a loss for which there isn't a reasonable risk of liability is an annual addition.

It's easy for me to remember because the Treasury department adopted my comment that the liability an employer meets by paying restoration should not be limited to ERISA fiduciary liability (as it would have been under the proposed rule) but should recognize liability under other applicable law. 72 Federal Register at page 16887 (April 5, 2007).

To support a position that paying up a "surrender" or contingent deferred sales charge is not an annual addition, an employer might seek its lawyer's written advice that the plan's fiduciary responsible for the selection or approval of the contract with that charge breached its fiduciary duty - or at least that a claimant could plausibly allege a fiduciary breach and that there is a "reasonable risk" of that liability.