No Rollover Contribution Fees for 6 Months -- Any Issues?

Bundled 401(k) service provider wants to attract rollover contribution dollars.  Accordingly, the provider wants to offer a promotional program where a participant will not be charged an asset-based fee for 6 months on any rollover contributions made to their 401(k) plan.  At the end of the 6-month period, the participant will be charged an asset-based fee on the rollover contribution account that is equal to the asset-based fee for all other accounts in the plan for all other participants.

In addition to providing administrative services, depending on the plan, the bundled provider offers: (a) directed trustee services; (b) 3(21) or 3(38) services; (c) online participant managed account services; and (d) discretionary trustee services for pooled accounts.

Other potentially relevant facts:

• Proper and timely service provider and participant fee disclosures will be made.
• This offer will apply to all participants in a given plan regardless of the participant’s existing account balance and regardless of the amount of the rollover contribution.
• Marketing materials will not be deemed to be providing investment advice (or any other fiduciary services beyond what is already offered in the plan).
• Participant education services -- but not investment advice -- will be provided to participants in connection with this 6-month promotional offer.

Any issues?  Benefits, rights and features issues?  Prohibited transaction issues?  Any action the trustee should take to minimize any DOL/IRS risk?

Any thoughts would be greatly appreciated.  Thanks.

Your query describes several facts about the service provider’s offer, but little about the retirement plan’s facts and circumstances. (That might be sensible in not revealing, even hypothetically, the plan’s information.)

The facts and circumstances matter for the responsible plan fiduciary’s independent evaluations of (at least):

whether previous decisions about the service arrangements were loyal, prudent, and impartial;

whether accepting what the service provider proposes would result in a loyal, prudent, and impartial allocation of plan-administration expenses;

whether the promotion helps or harms participants to whom the promotion is directed;

whether the promotion helps or harms participants who don’t (or can’t) make a rollover contribution.

Beyond thinking about those and other fiduciary questions, one might consider also whether accepting the service provider’s offer could (or might not) result in an allocation of expenses “in which . . . expenses . . . are allocated to accounts under the plan discriminates in favor of HCEs or former HCEs.” 26 C.F.R. § 1.401(a)(4)-1(c)(8) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(4)-1#p-1.401(a)(4)-1(c)(8)

If the fiduciary approves a revised service arrangement, a fiduciary might update plan communications, including 404a-5 disclosures, so they accurately and completely describe the service arrangements and expense allocations.

This is not advice to anyone.

The facts and circumstances that @Peter Gulia points out are relevant, but it may take a significant effort to get the information needed to make a decision.  I suggest starting with asking the bundled service provider to give you for the due diligence they did to be able to assure clients that this is acceptable.

Further, you may want to ask them to answer questions that you can anticipate receiving from participants like:

• If I have an existing rollover account, will the entire account have no fee?  If not, how will the new rollover contribution be accounted for?
• If I take a distribution from the new rollover account before the end of the 6 month period, will I be charged an asset-based fee?
• If I take a loan from the new rollover account before the end of the 6 month period, will I be charged an asset-based fee?
• If I take rollover a distribution from my existing rollover account and then subsequently decide to roll it back into the plan, will that be eligible for this offer?
• Does this offer apply to all asset-based fees such as including fees that may be associated with the plan's investment options such as 12b-1 fees, commissions, sub-TA fees, redemption fees and other similar fees?

You also may want to ask:

• If the bundled service provider's fee schedule is based in part of total assets of the plan, will the new rollover contributions be included in determining the provider's fee applicable to all participant in the plan?
• If a Schedule C of the Form 5500 is required, will the amount of the fee that is not charged to the participants be reported on Schedule C?

As a colleague always liked to say, the devil is in the details.

Paul I and Peter -- 

I appreciate the general fiduciary issues you raised that must be considered, as well as the "nuts and bolts" on how the promotion will be administered.

And to clarify, I am a representative of the provider rather than the plan.

Thanks again.

For a service provider, offering an arrangement can be proper if some plans could benefit from the arrangement.

Peter . . . . Again, thanks for your input.  I always find your responses on these boards informative.