Fees Charged by IRA during Automatic IRA Forfceout

[austin3515]

What obligation does a plan sponsor have to disclose the fees that will be charged by the IRA provider in order to open the default IRA account? So recordkeeper charges $75 to process a distribution, but the IRA provider charges $100 to open the account. This fee mind you is assessed from the IRA - it is not paid by the plan.

What are people doing here?

[401king]

We disclose just the auto-IRA fees on the notice. Based on the SPD disclosing the distribution processing fee, and assuming the participant has received that, we chose to leave that part out of the auto-IRA notice.

[austin3515]

I'm not following. RK/TPA fees total $75, these are the fees paid by the Plan. The IRA custdodian charges $100 to open the account. Where are you disclosing these specific fees (it would help if you referenced the indicated dollar amounts to eliminate any confusion).

We disclose just the auto-IRA fees on the notice.

What notice?

we chose to leave that part out of the auto-IRA notice.

These statements seem contradictory?

[GMK]

For distributions, we inform the participant of all the applicable fees (that we know about) that will charged to the participant's account by the plan or others.

[austin3515]

So including the fees charged by the IRA custodian to establish the account?

I'm not going argue with that as being the best policy believe me, but where does it indicate that it is a requirement to disclose those fees?

I have never heard of such a requirement to disclose the fee arrangement on the default IRA's before. I think that the distinction between best practice and a legal requirement is a very important distinction.

[GMK]

I have no idea if listing the fees is required.

I just like to avoid future calls from irate people telling me that they'd have done things differently if someone had told them how much it was going to cost them. Tell them up front, so the ball's in their court.

[rcline46]

Now I am (still) confused. How on earth is a force out happening is the location of the participant is known? Oh, it is not an auto-rollover, just a force out. In which case you are facing a recalcitrant participant, to which my response is 'tough ,..... (insert your favorite phrase)'

[austin3515]

No, it's an auto rollover to a terminated employee with less than $5,000 but more than $1,000. They just did not return their paperwork.

[401king]

We disclose just the auto-IRA fees on the notice.

What notice?

we chose to leave that part out of the auto-IRA notice.

These statements seem contradictory?

We disclose the IRA Custodian's fees (setup and/or recurring) on the 30-day notice to the participant that their account may be forced out to an automatic IRA. The custodian's fees may have an impact on the participant's decision (or lack thereof).

The part we leave out of the notice is our normal distribution fee because that has already been disclosed in the SPD.

[austin3515]

The challenge for those of us who work with multiple providers is that it is hard enough to track the fees charged by the plan, let alone charged by outsiders. That;'s the dilemma...

[hr for me]

I have to agree that it might help the recalcitrant former employee to do something (of their own choice) with their money if they understand that they will also be charged a fee by the auto-rollover IRA. Especially since many banks will open free IRA accounts. At minimum, I would put in the possibility of IRA fees being charged in the auto-rollover notice. Maybe not an exact amount, but the fact that a fee COULD be charged. Of course, that may prompt some calls asking how much the fee is.

But as a participant, I would want to know and be unhappy if I wasn't at least told there was a possible fee.

Again, it goes back to best business practice and information to the participant. I would also put it into the SPD if you talk about auto-rollovers.

[GMK]

Maybe I don't get it, but shouldn't whoever picks the force-out IRA provider know the provider's fee and be able to tell you?

Or if you pick the provider, then can you tell the providers to keep you up to date on their fees or you'll drop them from your list of possible force-out IRA choices?

[austin3515]

At minimum, I would put in the possibility of IRA fees being charged in the auto-rollover notice. Maybe not an exact amount, but the fact that a fee COULD be charged.

This is what we have been doing.

GMK, I don;t have to tell you I'm sure that there are just 24 hours in a day and nothing that sounds simple ever turns out to be simple. Every simple project takes time.

[Bird]

The DOL regs (from 2004...I think they are the final ones) say you must disclose how fees will be allocated...I take that to mean that you also have to disclose them.

    (4) Participants have been furnished a summary plan description, or a summary of material modifications, that describes the plan's automatic rollover provisions effectuating the requirements of section 401(a)(31)(B) of the Code, including an explanation that the mandatory distribution will be invested in an investment product designed to preserve principal and provide a reasonable rate of return and liquidity, a statement indicating how fees and expenses attendant to the individual retirement plan will be allocated (i.e., the extent to which expenses will be borne by the account holder alone or shared with the distributing plan or plan sponsor), and the name, address and phone number of a plan contact (to the extent not otherwise provided in the summary plan description or summary of material modifications) for further information concerning the plan's automatic rollover provisions, the individual retirement plan provider and the fees and expenses attendant to the individual retirement plan; and

[austin3515]

Bird, thanks!!! So the amount is not required to be disclosed, do we all agree? Like I said best practice would be to disclose the fees but it then becomes a business decision whether or not to go the extra trouble. Our phone #'s are right on our notice/cover-letter so they could certainly call us.

[austin3515]

Bird I just read your intro. I disagree, they could have said "disclose the amount of the fees" but they did not. In fact they said include a phone number...

for further information concerning the plan's automatic rollover provisions, the individual retirement plan provider and the fees and expenses attendant to the individual retirement plan

[hr for me]

I read it as telling the participant how the fees are allocated and disclose there are fees- that is the plan will pay the distribution cost out of the plan but the ex-participant will be responsible for any fees associated with the auto-rollover-IRA. Not so much what they specifically are.

However, I do think best business practice (and the ability to not have to field the phone calls) would be to put in as much information to the notice as you can.

[Bird]

I dunno - what does it mean to them if you tell someone "your account will be allocated 100% of any fees?"

I would not want to be in a position where I had to explain - to a participant or a DOL agent - that I think the regs said the fees did not have to be disclosed because of that language. Others can argue how many angels can fit on that pinhead.

[austin3515]

This came from a Corbel SPD. I thought it was interesting because it lined up with the regs so nicely. And because it fits so nicely I am concluding that Corbel decided this satisfies the minimum requirement.

The IRA provider will charge your account for any expenses associated with the establishment and maintenance of the IRA and with the IRA investments. You may transfer the IRA funds to any other IRA you choose. If this applies to you, you will be provided with details regarding your distribution rights and the automatic rollover IRA at the time you are entitled to a distribution. However, you may contact the Plan Administrator at the address indicated in this Summary for further information regarding the Plan's automatic rollover provisions, the IRA provider, and the fees and expenses associated with the IRA.