Fees to Terminated Participants

[austin3515]

Got a plan that has a lot of terminated participants. Plan has never paid any fees before. LEt's say our fees are $1,000 and there are 50 people in the plan, so per capita, the fees are $20 per person, and the sponsor wants that $20 to come from the terminated particpant accounts only (not the actives).

Now, I know that this is a workable scenario under that FAB thingamabobber. My concern is that participants have never been told specifcially about this fee. The SPD says administrative expenses could be paid by the plan, but no one was ever told that there was a $20 annual fee.

The more I think about it, the more comfortable I am with it, but I just wanted to see what people thought. P.S., the plan is NOT participant directed.

[ESOP Guy]

I think this would require some notices. We use Relius forms and documents. For the distribution notices they have a section where you have to spell out in detail if terminated employees are going to pay a fee that is applicable to just them.

If I remember correctly that was added a few years ago because of a rule change.

So at a minimum it would seem like they should all get new distribution forms that spell out the fact if they leave the funds in the plan there is this new fee. That might not be a bad thing anyway. Maybe that will get them to take the money out of the plan and then everyone can be done with them.

There might be more I am mostly doing this from memory.

[Kevin C]

We have some clients that do that, too. We've insisted the fee be disclosed, usually in an SMM, before the fee gets charged directly to the participant. We decided that advance disclosure was the right thing to do and did not look at whether or not it was required.

There will always be some issues that pop up. For example, what do you do with participants with small balances, especially those with balances less than the fee?