Termination of services fee from plan assets

Anybody see this from Paychex?

A Plan Transfer Fee of $1,500 will be applied to any client who transfers its plan recordkeeping to a new service provider and who is not currently/does not continue to process payroll with Paychex.
Select the Plan Transfer Fee payment method from the options below.
Note: If you do not select an option, Paychex will collect the fee from the Plan's assets.

I'd think that ceasing payroll services and tying that to taking fees from plan assets is problematic.

Using Paychex as your 401k provider is problematic regardless and it's likely well worth the $1500 to get the heck out, from wherever it's paid.

A transfer/de-conversion fee paid from plan assets is probably OK. Whether some other action taken by the sponsor triggers such, I don't think matters. Clearly not an issue for someone not using them for payroll.

Without commenting on Paychex’s or any service provider’s particular fee:

Many ERISA practitioners believe a reasonable exit-processing fee an independent fiduciary approved as a part of a reasonable service agreement with no more than reasonable compensation that meets all conditions of ERISA § 408(b)(2) is an exempt prohibited transaction.

I have no more than a surface awareness of antitrust or competition law.  Perhaps a lawyer in that field might see a bundling, tying, or price-discrimination arrangement, and (if there is) might consider whether Paychex has enough market power for the arrangement to be anti-competitive.

Client tells Paychex they are staying with payroll, just moving the Plan. Paychex releases assets, client fires Paychex. Seems fair to me based on the service typically received from them

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