Reimbursed fees on Sched H/I

[TPApril]

simple question- when prepping Schedule H or I, are amounts that are reimbursements for fees treated as Other Income or subtracted from the Administrative Expenses

[Andy the Actuary]

As Charlie Chan might have said, "Inside every simple question many questions itching to get asked."

What do you mean by reimbursed fees? Are these employer or employee contributions or reimbursements by by the organization that assessed the fees in the first place?

Is this a DB or DC plan?

[TPApril]

response questions well posed -

DC plan with some fees reimbursed by investment company and some reimbursed by plan sponsor.

Are you saying that when reimbursed by the plan sponsor they are counted as Employer contributions? if so, do they need to be included in the 415 test or just the max deductibility test?

[TPApril]

I thought I'd repost my questions. Not sure yet how to treat amounts deposited to the trust by the plan sponsor to reimburse the plan for fees withdrawn from the trust, either for administrative or other expenses?

[Andy the Actuary]

I cannot cite chapter and verse but treating investment company reimbursement as a net against expenses (i.e., reduce reported expenses) feels appropriate. You may find wide disagreement and if someone can cite you a basis, run with it, but I would treat employer reimbursement as a contribution.

The issue, here, is that contributions typically get allocated as a percent of compensation whereas expenses (i.e., negative income) get allocated based upon account balances. So, my interpretation yields a different result depending upon whether the employer reimburses the expense or pays it outside the plan.

I do not practice in the DC area but have always treated these reimbursements as employer contributions under the DB plan scenario. Of course, this treatment does not affect the participants' benefits as indicated in the preceding paragraph. While this may not shed any light, the auditors always sign off.

Here is a somewhat different interpretation and the circumstances do not seem exactly the same as your situation: http://benefitslink.com/boards/lofiversion...php/t48278.html

[ESOP Guy]

I don’t believe there is a place one can point to for official guidance.

I never count employer reimbursements of fees as contributions. I don’t show them coming into the plan or going out as an expense for the 5500 series.

I have always gotten the plan auditor to sign off on this. I don’t recall a plan I worked with that did this being audited by the IRS or DOL.

I will add all the plans that this happened to them it was because the trust company said they could not bill the client directly. Their system required the plan to be billed was the claim. I suspect the trust company just wanted their money faster so they took it from the plan. The trust company did not show the reimbursements as contributions either. It was just a “misc in” amount that equaled the fee amount.

[TPApril]

Andy, interesting discussion you linked to which brings up a lot of other issues related to fee reimbursement.

ESOP Guy - I thought by your name you would suggest the reimbursed fees be treated as employer contributions. If I recall correctly, in an ESOP, when an employer reimburses an ESOP for the value of a distribution that is paid out, that amount is treated as a contribution. I know it's different but it does make me wonder, any time an employer does put money into a plan for one reason or another if it should be treated as a contribution.

[ESOP Guy]

TPApril:

While it is true that money put into an ESOP to provide liquidity for distributions can be a contribution, it could be a dividend paid on the stock for example. Not all money going into an ESOP to fund a distribution is a contribution. I believe that you are making an apples to oranges comparison in this case.

No one would call money going into an ESOP to fund distributions as a reimbursement.

One could look at this way. The ESOP sponsor could put money into the ESOP, via contributions, even if there are no distributions and then years later when there are distributions you use that cash to make the payment. There is a buy/sell between the participants that is going on. My point is regardless if the cash addition/distribution happens in the same year of different years the accounting requires some people to get an increase in shares in exchange for some portion of the cash in their account.

The expense example is different. The times I have seen this happen the full intent of the sponsor was to pay 100% of the expenses for everyone. I realize intent and legal isn’t the same thing. In this case the transaction doesn’t require a change in anyone’s account. The money can come and go and no one’s account would have to change. With the ESOP distribution example most if not everyone’s account will change in some manner. Either they are selling cash and buying shares, or they are the person being paid from the ESOP. So while on the whole the nothing changes in the ESOP, the cash went in and the cash went out—that nets to zero on the whole, within the group the details have changed.

In the ESOP example the shares staying in the trust have to be spread to everyone who has cash in their account. How any given account gets cash is independent of the distribution (payment). In the case of the expense reimbursement the cash is being put in because there is an expense to be paid, and the employer does not want the employee accounts to take a hit.

Like I said I have never seen cut and dry guidance on this, but I think my position is reasonable. And one of the things I have found over the years is when you are reasonable and treating the NHCEs fair when the rules isn’t clear, the IRS give one a lot of slack.

[TPApril]

Yes, it all sounds familiar! Thanks for a great description and comparison.