Paying Random IRS Audit fees from DB Plan assets

We have an overfunded DB plan that is being randomly audited by IRS.  TPA fees to respond to the audit are pretty substantial, but are actually less than 0.1% of the total overfunding amount.

This is a H&W plan but they also occasionally have 1 non-owner Employee.  For the year being audited (2022), no rank and file employees accrued any benefits, but for 2025, the year in which the fees will be paid, there will be 1 or 2 eligible NHCEs.

Do we think the client can pay the TPA fees as they relate to 2022 from the overfunded plan assets?

If the Plan allows for expenses to be paid from trust, then I don't see where this sort of fee would be prohibited.

I believe under PPA funding rules you would add the expenses into the TNC for the year but if you're over funded it shouldn't have too much impact on the MRC for the year.

Maybe it's just me.  It seems more likely that the number of NHCEs during the audited year(s), including whatever benefit they earned and/or vested, will be the more important concern.

On 7/11/2025 at 6:05 PM, Barbara said:

H&W plan

You say overfunded DB plan and then this? I'm confused.

If indeed an overfunded DBP, I don't see an issue with paying eligible expenses from the plan in the year incurred (current) regardless of the audited year and HCE/NHCE numbers for those years. If a DC plan where you were charging NHCE accounts currently to pay for an audit of a prior HCE-only plan year, that could be a concern, but not convinced that would be prohibited. With a DBP, employer funding is ultimately responsible for promised benefit either way.

21 hours ago, CuseFan said:

You say overfunded DB plan and then this? I'm confused.

I think the confusion is that it's not a Health & Welfare plan, but rather a Husband & Wife DB plan

Got it, thanks.