feasibility study fees

[Dawn Hafner]

When considering which fees may be passed onto qualified plans (settlor vs. nonsettlor distinction by DOL), how do feasibility study fees fit in?

Does it make a difference if it is an ESOP already in existence, reviewing the feasibility of becoming 100% employee owned vs. 15% employee owned? It doesn't seem to be an administrative or compliance type of fee, but it is a fee to determine the prudence of an investment and in taking on debt. Any cites are appreciated.

[RLL]

This is an area that is somewhat unclear. Is the feasibility study an expense necessary in the operation and administration of the ESOP? Is the purpose of the feasibility study for the benefit of the ESOP participants or for the benefit of the company and/or the non-ESOP shareholders?

Why take the risk of having the payment treated as a violation of ERISA? Why not have the company pay the costs? Since the ESOP's primary source of funds is usually the company (through employer contributions), let the company pay this cost as well.

The risk of an IRS or DOL challenge does not justify having the ESOP pay this expense. My guess is that DOL would treat the cost of the feasibility study as an expense which should NOT be paid by the ESOP.