firing a client for non payment of fees

[Scuba 401]

anyone have a procedure they follow. we also manage assets held at fidelity. our service agreement allows us to sell assets for non payment of fees but i am not sure this is allowable under ERISA. anyone have any opinions on that as well?

[Jim Chad]

Yes, it is legal to have the plan pay TPA fees. Is it in the document?

[Scuba 401]

Yes, it is legal to have the plan pay TPA fees. Is it in the document?

so you do not see an issue with selling assets without authorization? yes the plan allows for the sale of assets to pay fees and our service agreement allows for it but can the sponsor contend each sale has to be authorized?

[BG5150]

But what recourse does the TPA really have to take plan assets to pay fees without plan administrator or trustee approval?

[MoJo]

This area is really ripe for error and merits further discussion. First, I wouldn't "sell" plan assets UNLESS the agreement between the service provider is WITH THE PLAN (as a party) and not just with the sponsor. If the plan is a party to the contract, the debt runs to the plan, and (theoretically) can be enforced against the plan. Choosing which assets to liquidate and when, however, smells like a fiduciary function, and care would need to be taken in doing so. Suing the plan is an option. Alerting the DOL as to the "deadbeat" plan and the possibility of suit is another.

Clearly, the service provider is within their rights to terminate services - but if they are a fiduciary with respect to the assets, I wouldn't think it prudent to "abandon" those fiduciary functions without assurances that another (competent) fiduciary is in place to assume responsibilities. Of course,a court could force the appointment of a successor fiduciary if the plan sponsor is unwilling to do so.

Just my 2 cents worth.

[My 2 cents]

My 2 cents's worth: The contractual agreement between the sponsor, the trustees and the service provider should spell everything out, including which service fees can be deducted from the funds, which fund(s) should be used when expenses are to be deducted etc. I would expect most service providers, especially those who handle plan assets, would have procedures in place to deal with slow payment of proper, billable expenses. Termination of services would presumably be a last choice action.

The existing agreement would serve as adminstrator/trustee approval.

The plan must specify that expenses may be paid by the plan if not paid by the sponsor, and plan assets should not be used to pay expenses incurred for settlor functions. If the sponsor does not want the plan assets charged to pay expenses, the sponsor should take care to pay them within the period for covering expenses as described in the contract/service agreement. Plan sponsors would not be able to just refuse to pay legitimate expenses from their service providers any more than they can refuse to pay for their raw materials or other business expenses.