Pass-Through Expenses--Cash Balance Plan

[SadieJane]

The vast majority of DOL guidance about when it may be appropriate to pass through eligible administrative expenses to the participant directly affected by the administrative action is limited to defined contribution plans. Question has come up whether you could do the same under a cash balance plan (assuming the expense is reasonable, it's reasonable to assess it to the particular person involved, etc.), which is, of course, a defined benefit plan but does have individual accounts. The only thing I can find on whether you could pass through expenses in a DB Plan is an informal DOL staff comment saying yes, specifically for the expense of QDRO administration, but would need DOL and IRS guidance on the issue. Has anyone seen any other guidance or comments on the issue?

[Lou S.]

I do not believe you can charge expenses directly to the participant in a CB plan. Unless you have it written into the document somehow as part of the accrued benefit.

[Effen]

Lots of comments on this if you search the board and the internet, the short answer is, "no", you can't charge participants in db plans the way you can in dc plans.

I am not sure if you statement was a typo, or if you really meant to say the "defined benefit plan does have individual accounts"? DB plans do NOT have individual accounts. They have hypothetical accounts that may be equal to the participant's accrued benefit. The assets of the plan support support all of the plan benefits. The plan is always either overfunded or underfunded. Money is not actually allocated to individual people unless the plan is being terminated. This is the main reason why participants cannot be charged administrative fees.

Even in a QDRO situation, you cannot charge the participant fees related to the QDRO. I am not sure what you read that implied you could, but the DOL has been pretty clear about this as well.

[david rigby]

Yep.

However, when the CB plan is overfunded, it may be legitimate to pass certain expenses to the Plan.

[QDROphile]

Please identify the statment(s) of the DOL to the effect that fees relating to a QDRO cannot be charged.

[SadieJane]

The DOL comments I refer to in the OP are in informal staff comments to a May 3, 2006 ABA JCEB meeting (Q&A 5): "Staff believes that the principles set forth in [FAB 2003-3] applicable to determining the permissibility of allocating specific expenses to the account of an individual participant, rather than the plan as a whole (i.e., among all participants) would apply to QDRO determinations in a defined benefit plan. Staff noted that the Department would be willing to consider providing further guidance on this subject if specific issues were submitted and, since there may be qualification and anti-alienation issues within the jurisdiction of the IRS, the Department would coordinate with the IRS on such guidance." I personally would not rely on this, but was surprised by it. In the May 2009 JCEB meeting, they were asked if a defined benefit plan could charge for QDRO determination outside of the plan and they declined to answer but said they may consider it.

[david rigby]

Esssntially identical questions (related only to QDRO expenses) were posed to the DOL and IRS for the 2013 Enrolled Actuaries Meeting. Responses below (the copyright applies to both). I'm not claiming this is a regulatory statement, just take it as you wish.

DOL Green Book QUESTION 2013-7
Fiduciary: QDROs: Charging Participants with QDRO Expenses in a DB Plan
Advisory Opinion 94-32A originally provided that participants can’t be charged for QDRO administration.
However, subsequently released FAB 2003-3 provides that QDRO processing fees can be charged against a DC plan account (if permitted by the plan), and the FAQs on the DOL website reiterate this position. However neither FAB 2003-3 nor the FAQs address reduction of DB plan benefits to cover
QDRO administration, or payment by the participant of QDRO administration fees outside the plan.
a) Can a DB plan reduce accrued benefits to cover QDRO administration fees?
b) Can a DB plan require a participant to directly (i.e., outside the plan) pay fees for QDRO administration?

EBSA STAFF RESPONSE
The first question relating to reduction of accrued benefits is within the jurisdiction of the IRS (see 2013
Gray Book Q&A 42).

Staff does not believe this to be the appropriate forum in which to answer the second question.



IRS Gray Book QUESTION 2013-42
Other DB Plan Issues: Charging Participants with QDRO Expenses in a DB Plan
DOL Advisory Opinion 94-32A originally provided that participants can’t be charged for QDRO administration. However, subsequently released DOL FAB 2003-3 provides that QDRO processing fees can be charged against a DC plan account (if permitted by the plan), and the FAQs on the DOL website reiterate this position. However, neither FAB 2003-3 nor the FAQs address reduction of DB plan benefits to cover QDRO administration, or payment by the participant of QDRO administration fees outside the plan.
a) Can a DB plan reduce accrued benefits to cover QDRO administration fees?
b) Can a DB plan require a participant to directly (i.e., outside the plan) pay fees for QDRO administration?

RESPONSE
a) No. The proposed hybrid regulation specifically notes that the plan cannot reduce the account balance for administrative expenses and we would not expect to condone a different result for other types of formulas.
b) This question should be addressed to the DOL. However, we note that even if it were acceptable to require payment from the employee, given that the plan administrator cannot use a charge against the accrued benefit as a fall back position and given that the plan administrator cannot refuse to process the QDRO, charging the participant for the work appears to be problematic.


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[QDROphile]

Thank you for providing the best available statements; reliance or not.