Fees eligible to be paid from plan assets

[CuseFan]

Client's plan is being audited by IRS. We provide support services to the client/plan for the audit and charge a fee. Is that fee eligible to be paid from plan assets?

[My 2 cents]

My understanding:

1. What does the plan say?  The plan can only pay expenses if the plan says it can.

2.  If, as you say, the plan is being audited by the IRS, any services provided to enable the plan to maintain its qualification would fall into the category of expenses that can be paid by the plan (if the plan so permits).  Nobody questions whether auditor expenses related to obtaining the accountant's report for a 5500 filing can be paid by the plan (if the plan so permits), and this would appear to be similar.  Expenses related to applications for favorable determination letters would also be permissible for the plan to pay.  Expenses for actions for the benefit of the employer (i.e., those required by ASC-715 or those related to plan design) must be paid by the employer and not the plan.

[david rigby]

When in doubt about expense payments, the PA/fiduciary might wish to consider getting opinion of ERISA counsel.

 

[jpod]

Is this a self-directed DC Plan?  If so is it typical to charge this type of expense to participants?  How exactly do you disclose this? ("Sorry but we incurred $XXXX in professional fees in connection with an IRS audit of the plan and you're paying for it!")

[CuseFan]

Thank you both for your input.

The plan does allow for payment of expenses.  We typically suggest counsel opinion in gray areas, but the fee will be immaterial to both the plan and the employer, so likely not worth that hassle. Was hoping it would be more black and white - I'll suggest they pay directly to avoid any potential issue just in case. Thanks again.

[formeractuary]

We have paid expenses such as this from our plan without issue.

[Luke Bailey]

I think the answer could depend on facts and circumstances. If the plan is clean and the audit random and finds nothing, could probably pay from plan assets on theory that was defending qualification, like costs of DL. But if, e.g., the employer had not properly maintained plan document or operations, seems questionable whether expenses of audit could be charged to plan any more than costs of VCP or audit CAP could have been charged to plan.

[CuseFan]

Fees are currently for various documentation assembly and representation and answering questions. I agree that if we got into issues and necessary corrections that could be a different story. Thanks

[401_noob]

If not previously done so, wouldn't you have to disclose the fee to the participants via 404a5 fee disclosure at least 30 days prior to the fees being charged to their accounts? 

[My 2 cents]

1 hour ago, 401_noob said:

If not previously done so, wouldn't you have to disclose the fee to the participants via 404a5 fee disclosure at least 30 days prior to the fees being charged to their accounts? 

I suppose this issue depends on whether it is a defined benefit plan or a defined contribution plan.  If a defined benefit plan, are there mandatory participant disclosures concerning fees to be paid by the plan?

[401_noob]

43 minutes ago, My 2 cents said:

I suppose this issue depends on whether it is a defined benefit plan or a defined contribution plan. If a defined benefit plan, are there mandatory participant disclosures concerning fees to be paid by the plan?

Valid point, I didn't think about that. The 404a5 fee disclosure would only apply to participant directed individual account plans. I am not familiar with DB plans or their respective disclosure requirements regarding fees, but I am assuming that the answer is no. Am I right?