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Fees paid from participant accounts unintenionally


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Plan switched investment platforms and during the switch, the way fees were paid got changed.  The client usually pays the fees directly from the company not the participant accounts, but when it moved it got set up to pay from participant accounts.  This has been going on for about 4-5 months.  Client realizes this and wants to fix but platform says you signed the form, it's not a mistake so we can't reverse this.  Client wants to find a way to rectify this mistake.  Any suggestions?  It involves about $3000, averages about $50-$100 per person.  my thought it to do a small profit-sharing contribution for that amount to each participant assuming it passes testing, which i think it would.

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Check your plan document for provisions related to the payment of expenses.  If you are using a pre-approved plan, be sure to check the provisions in the Basic Plan Document.  It is very common for the BPD to have a provision that the Employer can reimburse the plan for expenses, and the Plan Administrator can determine what is a reasonable and nondiscriminatory approach on how to allocate (credit) the expense to participant accounts.

If the plan document supports making a reimbursement, operationally the Plan Administrator should be able to give the recordkeeper a file of amounts by person/source, make a deposit for the total of the amounts, and instruct the recordkeeper to post the amounts so they are categorized as something other than contributions (e.g., income, positive expense amount, adjustment...).

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This seems like a lot of fancy dancin' for an innocent mistake. The sponsor should consider just saying "look we didn't mean this to happen, sorry" and maybe throw a few extra bucks into a bonus. Yes, it's probably possible to make additional PS contributions, and yes, it might be possible to reimburse expenses (but that seems like a long shot to me). But it's likely to be a big hassle.

Ed Snyder

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Never underestimate the value of employee relations and participants' perception of the integrity of the company or the plan's service providers.

We work with more than a dozen recordkeepers and none of them would push back on posting an expense reimbursement if it is available under the plan document.

Trying to fix this with a few extra buck in a bonus just pushes the hassles on to payroll (not to mention the hassles when payroll does not report the bonus correctly when reporting plan compensation).

On the other hand, tell a participant that their account was dinked $100 for an expense that was due to a setting that was missed during a change in the investment platform would not be received well.  The participant likely will respond that the $100 less in their account will translate into $2,000 (or more) less money that will be available to them when they retire.  (Yes, some participants read the communication material they get bombarded with.)

Another participant just as likely will say $100 would get them dinner and see a movie.

Own it, clean it up and let participants know the company is a responsible steward of the participants' money in the retirement plan.

 

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