Employer contribution for surrender charges

[Guest Daniel Fisher]

A plan is invested in a certain investment vehicle, which charges a surrender fee. The plan decides to switch investments. All the participants who are invested in the above mentioned investment vehicle are charged the surrender fee. The Employer wishes to make a special one-time contribution to the plan to cover the surrender fee and put all affected participants in the same position they were in prior to the surrender fee.

Does anyone know of any authority from the IRS or DOL which says that this type of action is acceptible?

[KJohnson]

Based on the facts that you presented, I think that the "restoration payment" would count as an additional contribution under the terms of the Plan and the Code. Absent an amendment, the contribution would have to be allocated based on the Plan's contribution formula. Also the contribution would be included for all testing purposes.

You might want to look at the following article: "The Do and Don'ts of Restoration Payments" by Fred Reish. I think it can be found at www.benefitslink.com/reish/articles/doanddonts.html

[This message has been edited by KJohnson (edited 03-14-2000).]

[Alf]

It may be possible to have the employer pay the fee directly. Read the contract with the investment company and see if it can be done. An employer can pay plan expenses directly without impacting the deduction / allocation limits.