Fees for self-directed accounts

[Guest mo]

We have a plan where the additional fees incurred for maintaining self-directed accounts are charged directly to the self-directed account. One participant wants to pay these fees directly instead of having them charged to his account. One issue is whether we should allow him to make the payment directly to the trustee from his own funds, as that might look like an after-tax contribution. However, we also have some reservations about running the payment through the plan sponsor, as that might look like the plan sponsor is paying this participant's self-directed expenses (of course he is an HCE) and not paying anyone else's. Any thoughts?

[Guest Connie]

If the trustee will allow participants to pay the fees directly, and if the plan document allows for direct payment, there is still the problem of how these payments will appear.

[Guest mo]

My thought was that the best solution might be to get the trustee (who is a trust company) to invoice the trust fees and then only deduct them to the extent not paid directly. In other words, a direct payment wouldn't show up at all in the trust accounting.

[Jon Chambers]

Be careful with this approach. Depending on how its handled, the fee payment MAY count as an annual addition. There's a PLR or Revenue Ruling on the issue. From memory, if the fee payment is a reimbursement, rather than payment of an invoice, it counts as an annual addition. If only one fee is paid in this manner, that may also have implications.

Sorry for the partial answer--no time to do the research.

Jon