Distribution Fees Charged to Participant?

[emmetttrudy]

I was always under the impression that Defined Benefit Plans could not charge a distribution fee against the participant's accrued benefit in a DB Plan because it was essentially a reduction in their accrued benefit. However, it seems as though a lot of people do this? I'm curious what the consensus is. Is this allowed or not?

For example, we have always processed them such that if the Lump Sum = $1,000, the Participant receives $1,000, and usually the Plan Assets will cover the fee. However, what I am seeing sometimes is the Charge for Distribution Forms = $200 and this is coming out of the Participant's Lump Sum, so they receive $800...

[PensionPro]

http://benefitslink.com/boards/index.php?showtopic=43403

[emmetttrudy]

http://benefitslink.com/boards/index.php?showtopic=43403

thanks, i came across that same question i asked back then but i was just making sure nothing had changed since then because we recently have come across a couple of scenarios where TPAs were having the fees deducted from the participant's payout amount, and i thought this was always a no-no. thanks for the confirmation.

[00hskrgrl]

thanks, i came across that same question i asked back then but i was just making sure nothing had changed since then because we recently have come across a couple of scenarios where TPAs were having the fees deducted from the participant's payout amount, and i thought this was always a no-no. thanks for the confirmation.

My experience has been that recently (last few years) there seems to be more TPAs entering the DB market who might not have as much DB experience. For example, we've seen an uptick in former DC-only TPAs specializing in DB takeover & terminations with the intent of enticing participants to rollover the DB plan into the 401(k) that the TPA is already administering. Good business for them, I guess. Maybe what you've been noticing with the distribution fees is from this sector of TPA's?