Record Keeping Fee Application

[Guest andmik]

Hello:

I have a client asking if they can assess an administrative fee only to terminated employees with account balances, but not applying any type of fee to active participants.

I can see that the DOL, in FAB 2003-3, establishes some guidelines but if my reading is correct, it appears to me that they really intended that an administrative fee that is assessed to everyone, can be passed through to terminated participants, but paid by the employer for actives, without a problem.

I do not read the FAB as saying you can assess a fee to terminated participants, but not assess it to active participants (though they may be paid by others), but maybe someone can correct me if I am reading this too conservatively.

Thank you,

Andmik

[QDROphile]

You are correct. Another angle is under section 411 of the tax code. If the fee is assessed only with respect to terminated participants, there is a detriment imposed on a participant that does not consent to distribution. Some would argue that the detriment does not violate because the fee not significant.

[Peter Gulia]

To interpret the significant-detriment interpretation, the Treasury department stated its view that a plan may charge the accounts of former employees (even while not charging current employees) as long as the expense otherwise is proper and a severed participant’s account bears no more than its “fair share” of the plan’s expense. To illustrate the “fair-share” idea, the Treasury department’s ruling expressly cautions that former employees’ accounts must not subsidize current employees’ accounts: “[A]llocating the expenses of active employees pro rata to all accounts, including the accounts of both active and former employees, while allocating the expenses of former employees only to their accounts” would be an improper allocation. Also, the reasoning of the ruling suggests some possibility that an expense allocation that’s more than the “analogous fee[] [that] would be imposed in the marketplace … for a comparable investment outside the plan” might be a precluded “significant detriment”. Working within these rules, an employer might absorb the portion of recordkeeping expenses that's attributable to participants who are current employees, while letting the plan charge a proper portion of expenses to the accounts of severed participants.

irb04_07.pdf

[Guest andmik]

QDROPhile and Peter - Thank you both for confirming my understanding - I really appreciate your help.

Sincerely,

Andmik