Employer Wants to Reimburse Plan

[austin3515]

Plan's recordkeeper wants to charge 20bps to participant accounts. They cannot override their system to charge the employer instead, so the employer wants to reimburse the plan for the charges.

Is there any problem with this? Because it is a direct reimbursement, I think it should NOT be treated as a contribution.

[david rigby]

They cannot override their system to charge the employer instead...

Employer might need a new recordkeeper.

[austin3515]

Beleive me, you have no idea...

TAG says anything the employer puts in = employer contributions even if reimbursing admin expenses. They provided the following citations if anyone is interested:

Revenue Ruling 86-142 and Private Letter Rulings 9124036 and 9252029

[Guest Sieve]

So what. That just means that the cash contributed/reimbursement is a contribution to be allocated according to the plan formula. That may not reimburse everyone fully for the expense, but it will help. As long as the IRC Section 404 deduction limit is not exceeded, and the contribution is not allocated in violation of non-disrimination rules, what's the harm? Under some circumstances, you could even amend the plan to permit such a contribution to be allocated the same as the expense allocation--which is OK if that allocation is not discriminatory when considered with the regualr allocation.

[austin3515]

"So What"

just that I need to do an amendment, worry about nondiscrimination, etc. That versus essentially no work at all. That's so what. I didn't give up on the project because it was a contribution .

[masteff]

Revenue Ruling 86-142 and Private Letter Rulings 9124036 and 9252029

So this is a recordkeeping fee, right? In which case, I'm calling BS on their citations.

From what I can find on 86-142, it dealt with brokerage commissions, which in another PLR the Service contrasts with "recurring administrative or overhead expenses incurred in connection with the maintenance of Plan B." http://www.unclefed.com/ForTaxProfs/irs-wd/2001/0127031.pdf

And seach in this document: http://www.wickenslaw.com/wp-content/uploa.../Chapter-05.pdf for those PLR numbers.

[austin3515]

Just to make sure no one ever calls my bluff, I'll just do the amendment. But thank you very much for the contrasting opinion!!

[mbozek]

Just to make sure no one ever calls my bluff, I'll just do the amendment. But thank you very much for the contrasting opinion!!

I agre with Masteff. RR 86-142 was issued to prevent brokerge commissons being deducted as a business expense on the 1040 sked A to evade the limits on deductible IRA contributions.

[Bird]

Wait a sec. From this PLR 200127031, you are concluding that it is ok for an employer to reimburse a DC plan for recordkeeping expenses that have been deducted from participants' accounts?

I'm honestly not following; maybe it's me.

[austin3515]

I just read it and I don't see any support for this in there either. Not even sure why it was provided as a relevant site...

Bird, you;re thinking this is a contribution, right?

[movedon]

I just read it and I don't see any support for this in there either. Not even sure why it was provided as a relevant site...

Bird, you;re thinking this is a contribution, right?

I'm not bird, but yes, it's a contribution.

[Bird]

Austin, yes, I think it's a contribution. But I'm curious - you're going to go ahead and let them reimburse, and then allocate it as a special contribution with an amendment? What happens when you inevitably have a terminated participant with $0 comp - you can't allocate a contribution to them? I could see doing this once, maybe, but not on an ongoing basis.

[austin3515]

The whole story is that the client was caught off guard by this "new charge" from their provider, and their employees were notified of the new charge by their provider, so to make amends with the ee's they said they would pay the fee for just the one year. And the new charge is only related to new money this year, so the 415 issue is not a concern here.

Truth be told, the provider could have the fee paid by the employer, but to do so for just one year would have been cost prohibitive for the vendor.

[Kevin C]

Interesting discussion, but I don't think any cite prior to 2007 can really answer your question. If the proposed reimbursement is not considered an employer contribution, it may still be considered an annual addition under

1.415©-1(b)(4)Transactions with plan.—

The Commissioner may in an appropriate case, considering all of the facts and circumstances, treat transactions between the plan and the employer, transactions between the plan and the employee, or certain allocations to participants' accounts as giving rise to annual additions. Further, where an employee or employer transfers assets to a plan in exchange for consideration that is less than the fair market value of the assets transferred to the plan, there is an annual addition in the amount of the difference between the value of the assets transferred and the consideration. A transaction described in this paragraph (b)(4) may constitute a prohibited transaction with the meaning of section 4975©(1).

Our VS 401(k) document mentions employer reimbursement of administration fees. Of course, it was submitted to the IRS by 1/31/2006, so it does not include language for the final 415 regulations.

Does anyone know if this has been addressed by the IRS in the context of the final 415 Regs?