Document fee for the first year of the plan

[Jakyasar]

Curious about the following:

Set up a PS plan as a qualified replacement plan (QRP) and billed the client.

Excess assets from the DB now transferred to the QRP. Now QRP has only excess DB assets and no other PS contribution will be made for 2020.

Client now wants to pay the document fee from the new PS plan assets, can they?

Thank you

[Bird]

"Settlor functions" such as starting and terminating a plan should be paid by the employer.  I can find a lot of latitude in my billing for "adoption" vs. "administration" if needed; will try to carve out some small amount for adoption (or termination).  Not that anyone is checking.

[CuseFan]

I think the requirement to allocate those assets to participants ratably over a specified period not exceeding 6 or 7 years, I forget which, precludes their use for anything else, including payment of expenses. Deviation from that could result in excise taxes retroactively applying to those transferred assets.

I also do not think that the preparation of the initial plan document is an expense eligible to be paid from plan assets.

[Jakyasar]

Agreed on not being able to pay the initial set up but not sure about the termination - need to check this again. But I agree that the termination fee which could be just for a simple resolution cannot be paid from plan assets however the amendments, distribution election forms could be, I think. Have not checked this in a long time.

Once the assets are ratably allocated i.e. became profit sharing then the fees can be paid. It is over 7 years starting with the year of QRP transfer.

Thank you both

[MWeddell]

I would not advise a client that the cost of preparing the initial plan document can be paid from plan assets.  (I would also say that the final decision must be made by the plan fiduciaries.)

From https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2001-01a:

Quote

In the context of tax-qualification activities, it is the view of the department that the formation of a plan as a tax-qualified plan is a settlor activity for which a plan may not pay.