Audit Fees Paid from the Plan Participant Accounts

[Pammie57]

I think I have read that the financial audit  (large plans) fees charged by a CPA firm can be paid from the plan each year.  However, my question is -what is a fair way to allocate those fees among the plan participants.  If the same amount is charge each participant, then some small account balances could almost be wiped out.   Most of my clients just pay it from the company and deduct it as a business expense I guess.  

For the client who insists on the plan participants paying for it - should they divide the fee based on account balance?  What are your thoughts and experiences?  Thanks

[Bird]

Is this a self-directed plan where you have to do a special transaction to pull the fees from the participants' accounts?  I guess it doesn't matter but in a pooled environment it would just be a fee that affects the gain/loss and would be effectively paid pro-rata (by account balance).  I can't imagine - in any environment - paying that fee equally for each participant (per capita).  

[Pammie57]

self directed -individual accounts...I have never had a client pay it from the plan where there are no forfeitures to us....so not really sure what format to use to allocate the fee. I am thinking it should be pro-rata - which means owner will pay the  bulk. 

[Peter Gulia]

In my experience, a fiduciary might balance a retirement plan’s needs and interests in not “wiping out” low-balance participants while also not burdening high-balance participants more than is prudent.  One way to do so is to allocate a portion of an expense on a by-accounts method and another portion on a by-balances method.

 

What’s “fair” and prudent turns on the particular facts and circumstances.

 

And a fiduciary must evaluate her decision considering only the retirement plan’s exclusive purpose, not her self-interest.

[Lou S.]

7 minutes ago, Pammie57 said:

self directed -individual accounts...I have never had a client pay it from the plan where there are no forfeitures to us....so not really sure what format to use to allocate the fee. I am thinking it should be pro-rata - which means owner will pay the  bulk. 

Shouldn't they Plan Trustee or Plan Administrator make that determination?

What did the Participant Fee Disclosure about Plan Audit Fees say?

[ESOP Guy]

Doesn't the allocation of fees have to be described in the document?  I mean I have seen some that give the Plan Administrator discretion but read the plan document first. 

 

As for the method I have seen just about all the ways described so far  used.  I have seen per capita, pro rata and the mix per capita and pro rata method described above. 

 

I even had one plan that was a balance forward that put most of the money in low yielding cash investment and charged the audit to the plan so every year the plan had a negative rate of return.  The company couldn't understand why so few people wanted to put 401(k) deferrals in the plan!  Who doesn't want to see money come out of your pay check knowing it will shrink every year????

[Bird]

18 hours ago, Lou S. said:

What did the Participant Fee Disclosure about Plan Audit Fees say?

That's a good point.  Not so much that it would specifically discuss audit fees, but the question is whether it says anything at all about general "administrative" fees, which might indicate (by omission) that this can't be done at all.