Profit Sharing Plan pays expenses of Cash Balance Plan..Issues?

[jkharvey]

The administrative expenses of the employer's cash balance plan were paid in 2016 by the profit sharing plan. Does this create any PT issues or any other problems? The receivable is being repaid.

[jpod]

Maybe not a PT if the cash balance plan says that it will pay those expenses (e.g., rather than the employer being obligated to pay them).

However it is definitely an IRC 401(a)(2) exclusive benefit violation and an ERISA 404 exclusive purpose violation/breach of fiduciary duty.

[mphs77]

What provision of the Profit Sharing Plan allows for the usage of plan assets to pay another plan's expenses?

[jpod]

mphs77: What's your point? Obviously the terms of the profit sharing plan forbid such a thing.

[mphs77]

That is my point.

[Peter Gulia]

What do BenefitsLink mavens think about these potential corrections:

The defined-benefit plan or the employer pays the profit-sharing plan the amounts it advanced.

The breaching fiduciary or the employer pays the profit-sharing fair interest on those amounts.

The breaching fiduciary or the employer pays fees of professionals and other expenses incurred because of the error and correcting it.

jkharvey, if by today or tomorrow the profit-sharing plan has not collected all correction amounts, will the administrator allocate the correction receivable among participants' accounts?

[ETA Consulting LLC]

mphs77: What's your point? Obviously the terms of the profit sharing plan forbid such a thing.

Correct me if I'm wrong, but...

I think mphs77 was saying that no matter what you call it; it's a violation. There is a clear exclusive purpose violation (whether or not it would meet the technical definition of a prohibited transaction and, therefore, corrected in the same manner as you would correct a prohibited transaction is a good question). But, it is a qualification defect at the very least that should be corrected. Do you correct under the prohibited transaction methods with the 15% penalty and Form 5330 submission, or merely make the plan whole by having the employer reimburse the fees? I'm not saying one way is more preferable over the other, but just clarifying the point that "I think" mphs77 was making.

Good Luck!