VCP fee paid from plan assets

[JJRetirement]

For a non-ERISA (governmental) plan, can anyone point me to published guidance that would indicate that payment of a VCP fee from the trust would violate the exclusive benefit rule (or for another reason would not be permitted)?

I've always understood that correction expenses should not be paid from plan assets, but I am having trouble documenting that.

Thanks!

I do see in the IRS manual that if there is an indication that the compliance fee check came from plan assets, that the application will not be reviewed until it has been demonstrated that the plan has been reimbursed. This is EPCRS policy, but is it grounded in law?

[Peter Gulia]

For a governmental plan, there might in some circumstances be legitimate reasons for a fiduciary (even one that caused the defect to be corrected) to pay a VCP fee from plan assets.

The reasoning would turn on State law, and would be fact-sensitive.

Among the many questions:

Has the fiduciary obtained all recoveries due from service providers?

Does State law preclude the breaching fiduciary from paying a monetary liability?

If the plan does not use the IRS's correction program, how bad are the tax consequences?

Who bears the tax consequences?

If the plan pays the VCP fee, how will the fiduciary allocate it among participants' accounts?

[JJRetirement]

Thanks Peter. I really appreciate the input.

The municipality has agreed to pay the fee. Although the plan is 'administered' by a board of trustees that is (at least arguably) separate from the municipality, this was really an error in permitting ineligible employees to be enrolled. The enrollment process is handled by city employees.