Can Plan Sponsor Reimburse Plan for Fees Paid?

[JWRB]

I just spent two hours going through every thread I can find on here on the topic, and couldn't find a conclusion.

I have a plan sponsor that wishes to (1) reimburse the plan for investment advisory fees that are automatically deducted from participants' accounts and (2) reimburse for investment sales commissions.

I believe 1 is ok, but I do not believe 2 is ok, however, I can't reach a conclusion as to why for either.  The plan sponsor wants to deduct these, and not as part of a contribution.  Everything I'm coming up with is relatively gray.  

Thoughts?

[jpod]

Does the plan say that the plan will pay all expenses of the plan unless the employer pays them (or something to that effect)?  If so, the employer can reimburse the plan for the investment advisory fees (assuming they are plan level fees and not internal fund fees) and it will not be treated as a contribution, and the employer can deduct it as a regular business expense.  This is unlikely, but if the plan says that the plan will pay all expenses, with no caveat, the employer can reimburse but that reimbursement will be treated as a contribution, and it will have to be allocated to participants based on the allocation formula for non-elective contributions, and subject to the 404 and 415 limits.

Regardless of what the plan says, I believe there is (old) IRS guidance saying that commissions and brokerage costs incident to the purchase or sale of plan assets are not "expenses" but are part of the cost of the assets.  Therefore, if an employer reimburses the plan for those costs it must be treated as a contribution.   

 

 

 

[QDROphile]

Where do you get the "if the plan says the employer will pay all expenses ..." stuff?

[RatherBeGolfing]

This thread may be of interest

 

[JWRB]

Thanks for the replies so far.  RBG, I read through that thread a few times yesterday in my research, and I'm confident that having the plan sponsor billed would be legal.  I think with this plan, we're a bit handcuffed and the PS can't get billed directly for whatever reason.  

jpod, you seem extremely confident in your response.  Not doubting you whatsoever, but do you have any references for the employer being allowed to reimburse the plan?  That's my stumbling block, and while I agree with you, I'm having a difficult time proving it.  This PLR supports it, but it's not very current: https://www.irs.gov/pub/irs-wd/0507021.pdf.  As for the plan document, I can amend it, so I'm less concerned about what it says.

As for guidance on commissions, I agree with you.  I think the cite for that would be Rev. Rul. 86-142.

 

[QDROphile]

 Clarification. My question related to the difference between a discretionary payment by the employer as opposed to a contractual obligation to pay. My question did not relate to what expenses were eligible or not eligible.