Fees paid by the plan....by source?

[jmartin]

Facts: Audited 401k plan pays fees out of the plan (including audit fee)

Source 2 - 401k

Source 3 - Match

Source 5 - Rollovers (unrelated)

Current plan count is 200 participants with $1MM in assets

The plan has approximately 10 participants that would like to roll money into the. Assume each rollover is $100k. About an additional $1MM could be added to the plan. They are hesitant to roll the money into the plan because the rollover would increase their share of the plan fee. The rollover alone is 5% of the total plan balance. That doesn't take into account any other fee they may have (ie mutual fund expense, etc). It would be cheaper to keep in an IRA. However they like the protection of the 401k plan (and keeping all their eggs in one basket)

Questions:

1 -Can we choose which "sources" plan fees are deducted from? Can we say or choose plan fees will not be deducted from rollover sources?

2 - Can we say only participants that contribute 401k and receive match share in the plan fees?

[GMK]

They are hesitant to roll the money into the plan because the rollover would increase their share of the plan fee.

Does this also inhibit their deferral rate decision?

Don't have your answer, but ..

I don't see the logic of not having audit fees come out of rollovers. The audit looks at all the eggs in the basket, so rollovers add to the audit work, and that work should be paid for, in part at least, from the rollover balances. Said another way, why should those who do not rollover into the plan pay for the fees for auditing the rollover accounts? Of course, others may have another take on it.

The audit fee is a huge drain on a 401(k), and that fee compounds into lost future earnings forever. Maybe that's the way it has to be, but it really hurts participants' earning power in the plan. Would the plan sponsor consider paying for the audit?

[Lou S.]

It would be cheaper to keep in an IRA. However they like the protection of the 401k plan (and keeping all their eggs in one basket)

Seems like they want their cake and eat it too, no?

I think if you are allocation fees on any basis other than purely per capita, purely pro-rata or a comination of some fees pro-rata and other fee per capita, then you are making a fiduciary decision that you better be able to back up with some solid reasoning.

I personally would be uncomfortable with such an arrangement, especially if the bulk of the rollover dollars were from owners and or HCEs but I am not a lawyer.

[QDROphile]

Check the Department of Labor guidance about acceptable ways to allocate expenses. I don't think you are going to be able to exempt the rollover amount from all charges. You may be able to have the employer pay the rollover accounts' shares of charges that are allocated ito accounts in a reasonable way.

[masteff]

However they like the protection of the 401k plan

What type of activities are these 10 people engaged in that they fear loss of their IRAs? Why aren't they carrying appropriate liability insurance if they feel so much risk?

[TPApril]

This thread seems to be closely related to my question so I will post here. Situation is that fees are being assessed by total balance so each participant is paying their proportionate share. Selfdirected accounts are set up with one account by money source. Question is-can the portion allocable to a Roth 401k account be pulled from the same participants standard 401k account? End result is same fee amount is being paid, just not necessarily from the source that contributed to the calculation.