Reimbursement of Payment of Annual Audit Fees Question

[The 402"(G)"]

An audited plan of ours had a fee due in two parts. For purposes of this post, 2 payments of $5,000. The company paid the first part of the fee a few months ago out of their operating bank account. Recently, they received $8,000 from an ERISA class action lawsuit. Now that the other $5,000 portion of the fee is due, we are paying those fees out of the lawsuit money that was put to the retainer account.

The client asked if we are allowed to have a check of the remaining amount ($3,000) reimbursed to them under the guise that the money would have been able to been paid to audit fees to begin with.

Has anyone had expierence with this or guidance?

Thanks

[Lou S.]

I don't have experience with that in particular but why not use it to pay a portion of next year's audit fees?

[The 402"(G)"]

That is what our plan was, but the client asked if this was a possiblity. My guess would be to get the money now instead of having to wait for it.

[jpod]

It's sticky because that means you have to characterize the initial payment as a loan to the plan, which is a prohibited transaction. There is a class exemption that could have been used, but I am not sure that you can slide into that exemption retroactively. That is all I remember; you'll have to find and review the class exemption, including the preamble to the exemption.

[mphs77]

You said "they received", who is they? The Employer, the Plan or the Trust?

[The 402"(G)"]

You said "they received", who is they? The Employer, the Plan or the Trust?

The check was made out to the plan.

[david rigby]

[The check was made out to the plan.

If the check was made out to the plan (and if that is correct), then 100% of the $8000 belongs to the plan.

[jpod]

I think the OP recognizes it all belongs to the plan, but by the same token presumably the terms of the plan permit it to pay operating expenses, which would include the audit fees. However, you're still left with the "loan" and PT issue which I mentioned.

[The 402"(G)"]

Yes were 100% sure the money belongs to the plan and the funds are permitted to be used to pay the operating expense.

The main issue would then be going back and 'reimbursing' the employer for fees already paid a ealier this year. However from the sound of the posts and the research I've been doing it is looking like this is not allowed, since as mentioned it is a loan to the plan.

Jpod - Thanks for the suggestion. I've been looking into that exeption and there is a rule about it having to have it in writing in if 60 days or longer. Which would make sense for how you mentioned it can't be slid in retroactively.

[david rigby]

I was a "tag-along" to an attorney discussion on a similar topic last year. I'm summarizing here: the attorneys referenced PTE 80-26 and an article written by the Groom law firm. The focus was on (1) what does the plan say, and (2) whether there was a de facto loan between the parties (ie, the plan and the sponsor).

The conclusion reached was, "If there is a chance that the employer advances will not be reimbursed within 60 days, a written, no-interest loan agreement is required between the employer and the plan."

If your prior expense is more than 60 days old, you may have a problem with the plan making that reimbursement, especially if there is nothing implying the plan will make a reimbursement (possibility under certain conditions). It's prudent to get the auditor's input, in advance.