Invoice on plan paid out of different plan

[TaxLawyer1978]

Client has 3 plans - a DC plan, DB plan and a TDA plan.  They paid out legal invoices related to all three plans out of one of the plans' unallocated account.  All plans cover same employees.   Is this a prohibited transaction? 

[Larry Starr]

Is there a reason to hide information from us?  WHICH PLAN  paid the expense and what were the legal invoices for?????

[TaxLawyer1978]

Invoices were for legal fees related to the plans (tax qualification issues).  Paid out of the DC plan but approximately half of the legal fees related to the DB and TDA plans.  All plans covered same employers (multiple entities) of which employees can be participants in the plans. 

Prohibited transactions include: use of assets by or for the benefit of a disqualified person.  And "disqualified person" includes "an employer, any of those employees are covered by the plan." 

[Peter Gulia]

TaxLawyer1978, you'll want to advise your client

first, about which expenses may be paid from any of the three retirement plans' assets, and which expenses must be borne by a person that is not an employee-benefit plan;

next, about allocating the proper plan-administration expenses between or among plans so each plan pays no more than the "reasonable expenses of administering THE plan[.]"  ERISA § 404(a)(1)(A)(ii).

Although these allocations are decisions for which a plan's fiduciary is responsible, some employee-benefits lawyers are willing to classify a fee statement's time entries by which tasks may be charged to a plan (or must be borne by a sponsor or employer).

If a lawyer's task was for more than one plan's administration, it is much less usual that a lawyer expresses even a preliminary allocation between or among the plans.

[Luke Bailey]

Speaking theoretically about the hypothetical you are asking about, there is a good argument they are PT's for two of the plans. I'll use 4975 instead of 406 references for simplicity, but both may apply. The payments were made to a DQ'd person. See 4975(e)(2)(B), and therefore may be PTs, see 4975(c)(1)(C). Ordinarily, 4975(d)(2) might exempt, but in the case you posit the exemption points back to the wrong "plan" at least in two cases.

There are lots of other potential factors that could affect analysis, though. The above are just some thoughts