Loan Processing Fee

[chris]

Client that maintains a PSP w/115+/- participants wants to provide in updated SPD that an applicant applying for a plan loan will be subject to a one-time $125.00 loan processing fee as well as an annual fee of $100.00 (on account of audit charges from accountant and plan auditor concerning loans). I am not a TPA and thus don't have a good handle on what the range is on such fees. Can anyone give me an idea if the above is within reason? Thanks for your help.

[Bird]

We have to be careful discussing fees here...but that's probably not unreasonable.

[Kevin C]

I have some concerns about the annual part of the fee to pay for part of the audit. How was the amount determined? Does the auditor charge that amount extra per loan? Or, did the employer decide on the amount?

Timing is another issue. I take out a loan this year and pay the annual fee. The audit isn't done until next year, but I paid the fee this year. My gut feeling is that would be a problem.

[chris]

Thanks for the responses. Was not trying to have anyone divulge fees they might be charging just wanted to know if the proposed amounts were in line. Thanks for the angle as to reasonableness. My concern was with the 100.00 annual fee as well and I am trying to track down how that amount was arrived at. Also, I will need to make client aware that fees will only be applicable to loans taken out after they make the change re fees.

[Bill Presson]

Thanks for the responses. Was not trying to have anyone divulge fees they might be charging just wanted to know if the proposed amounts were in line. Thanks for the angle as to reasonableness. My concern was with the 100.00 annual fee as well and I am trying to track down how that amount was arrived at. Also, I will need to make client aware that fees will only be applicable to loans taken out after they make the change re fees.

Is the annual fee in addition to a regular loan maintenance fee? If so, I might question that. If not, I would question why you aren't charging a maintenance fee.

Also, if the employer is worried about the audit fee, just have the plan pay the audit fee. It can be allocated in different ways (pro rata, per capita); maybe that's what the discussion should be.

[GMK]

Also, if the employer is worried about the audit fee, just have the plan pay the audit fee. It can be allocated in different ways (pro rata, per capita); maybe that's what the discussion should be.

Any chance that someone might not like this idea? "Please explain to me again why I get charged more in fees just because That Guy took out a loan and those extra fees I'm paying are because of That Guy's loan." Just sayin'.

An annual loan maintenance fee sounds like a workable solution if it's based on some reasonable cost estimates. And I agree with Kevin C that the timing could be an issue.

[Bill Presson]

Also, if the employer is worried about the audit fee, just have the plan pay the audit fee. It can be allocated in different ways (pro rata, per capita); maybe that's what the discussion should be.

Any chance that someone might not like this idea? "Please explain to me again why I get charged more in fees just because That Guy took out a loan and those extra fees I'm paying are because of That Guy's loan." Just sayin'.

An annual loan maintenance fee sounds like a workable solution if it's based on some reasonable cost estimates. And I agree with Kevin C that the timing could be an issue.

But if you're going to do that what about:

1. the guy that doesn't defer, but only has profit sharing

2. the guy that doesn't take a hardship withdrawal

3. the guy that didn't screw up the payroll files and the auditor has to spend extra time checking deposits (none are late just not clean)

4. the guy that didn't mess up the schedule c

etc. etc.

I would find it very difficult to start allocating audit fees specifically based on the attibute being audited.

[GMK]

True, true, true, true, etc.

I wouldn't suggest an audit fee per se. Just saying that if you have a maintenance fee for loans (which have other costs besides audit fees), it should be based on reasonable estimates, for example, as opposed to being a sneaky cash cow for the plan. Even with an annual fee, the plan may or may not end up paying some extra audit costs or record keeping costs or whatever, but we're all trying to be clear about the fee policies and fair to all the participants.

[Bill Presson]

Actually, we charge a maintenance fee to cover a small part of our cost of processing the loan payments each year. Not to try and cover the auditors fee.