Automatic Rollover IRA - Set-up Fee

[J. Bringhurst]

In taking a spin through DOL 2550.404a-2( c), I don't see anything specifically permitting (or prohibiting) taking the intial set-up fee from the former participant account holder on whose behalf an automatic IRA has been established. Subsection ( c)(3)(iv) only states:

"(iv) all fees and expenses attendant to an individual retirement plan, including investments of such plan (e.g., establishment charges, maintenance fees, investment expenses, termination costs and surrender charges) shall not exceed the fees and expenses charged by the individual retirement plan provided for comparable individual retirement plans established for reasons other than the receipt of a rollover distribution subject to the provisions of section 401(a)(31)(B) of the Code; and"

I'm assuming that as long as the establishment charges do not exceed those of a comparable non-automatic rollovoer IRA, they can be passed along, in full, to the account holder. I did not see this stated specifically, but think it can be inferred.

Anyone think differently?

[Gadgetfreak]

I do not have an answer for you but appreciate you posting this. I can reasonably say that the work involved in processing a forced IRA rollover is more than a standard distribution. However, reading the above, it seems like I am not allowed to charge a higher fee for this extra work. Can anyone comment?

[Jim Chad]

I don't bill extra for setting up the Auto IRA. But prior to that, I sometimes bill for my time in looking for a lost Participant. Does this help?

[Peter Gulia]

There's another logic gap involved with the text of the rule that the originating post refers to. This fees-and-expenses comparison is between the default-rollover IRA and non-default IRAs of the same IRA provider. But some custodians or "providers" of default-rollover IRAs offer only those IRAs, and so don't have any non-default IRA to compare to.

The 29 C.F.R. 2550.404a-2©(iv) condition is about the fees and expenses of the default-rollover IRA. It's not about expenses of administering the employment-based plan. Other law governs those expenses, and governs what might be allocated to such a participant's plan account.

[J. Bringhurst]

Any IRA accepting a rollover from a qualified plan will normally charge a set-up fee. I'm really just trying to figure out if the set-up fee can be passed along to the former participant (i.e., charged against his new automatic rollover IRA) or if the set up fee must be paid by the sponsor of the plan from which the rollover originates.

[GMK]

Any IRA accepting a rollover from a qualified plan will normally charge a set-up fee.

Really? (I didn't realize the "any" and "normally" parts, but I'm not very worldly.)

[Belgarath]

I'd say it depends somewhat upon the specifics of how the fee(s) is/are imposed.

For example, if the new IRA custodian charges a $100.00 set-up fee to the plan to "register" to use this custodian, plus $50.00 for each IRA, then I'd say the $100.00 set-up fee cannot be imposed against the participant's account, but the $50.00 fee can be imposed against the participant's account.

On the other hand, if the custodian simply charges a flat $100.00 fee for each IRA they set up, then I'd say this can be imposed against the participant's account.

And of course, the fee must be determined to be "reasonable" by the Plan fiduciary.

[Gadgetfreak]

I agree with Belgarath.

[J. Bringhurst]

I'd say it depends somewhat upon the specifics of how the fee(s) is/are imposed.

For example, if the new IRA custodian charges a $100.00 set-up fee to the plan to "register" to use this custodian, plus $50.00 for each IRA, then I'd say the $100.00 set-up fee cannot be imposed against the participant's account, but the $50.00 fee can be imposed against the participant's account.

On the other hand, if the custodian simply charges a flat $100.00 fee for each IRA they set up, then I'd say this can be imposed against the participant's account.

And of course, the fee must be determined to be "reasonable" by the Plan fiduciary.

Seems logical....Just didn't know what folks are actually doing. Thanks!