Discontinue paying advisory fees for terminated participants

[Anonymoose]

An employer currently pays advisory fees for all participants in their 401(k) Plan. The plan assets are held at brokerage firm A. The advisory company and the employer have some common ownership so the plan is not allowed to pay the advisory fee expense. Would it be permissible to move the accounts of the terminated participants to brokerage firm B (unrelated to the employer or advisory company) so the employer can discontinue paying the advisory fees for the terminated participants? This may encourage the terminated employees to roll over their accounts to IRAs

[ETA Consulting LLC]

There is a fine line here. The "rule" is that the employer may not impose any "significant" adverse conditions for employees who terminate and choose to leave the funds in the plan. Hence, if the balance is above the cashout limit, then there is nothing the employer could do. There was an issue a few years back where (if I remember correctly) the courts seemed to rule that charging a fee for these terminated participants would not constitute adverse treatment for leaving their balances in the plan. Not sure what criteria the fees had to meet in order to avoid being considered adverse treatment , but that may be a start to attempting to provide insight on your question.

Good Luck!

[BG5150]

if this is a plan with individual accounts with individual investment direction, I don't see how you could make them change.

[Lou S.]

If you are talking about a large some of money it is likely a fiduciary question for the Plan Trustee. If the savings will be large, might be worth getting a legal opinion on it.