Is it discriminatory to charge higher distribution fee for smaller accounts?

The standard distribution fee from the plan is 75.00.  If a participant is "forced out", however, the fee is 125.00.  The forceouts are always the amounts that are less than 1,000.  The original theory behind the additional fee was that there is additional work involved in setting up the rollover IRA.  For amounts, however, that are not rolled to an IRA, i am concerned that this fee could be looked at as discriminatory since it essentially is only going to be applied to NHCEs.  Any input is appreciated.  Thank you.

Yea I would take issue with this.  Looking past the discrimination issue, how is this fee structure reasonable?  I would be worried about potential litigation.

4 hours ago, jkharvey said:

The standard distribution fee from the plan is 75.00.  If a participant is "forced out", however, the fee is 125.00.  The forceouts are always the amounts that are less than 1,000.  The original theory behind the additional fee was that there is additional work involved in setting up the rollover IRA.  For amounts, however, that are not rolled to an IRA, i am concerned that this fee could be looked at as discriminatory since it essentially is only going to be applied to NHCEs.  Any input is appreciated.  Thank you.

That argument makes no sense.  The plan making the distribution is not doing it right if there is any significant additional work to the mandatory IRA.  We do them all the time (we use Millennial Trust) and the system is pretty much automated.  If anything, it might be less work than a cash distribution with withholding.  Yes, I think there is a potential problem. However, if the employer is paying the cost (which is almost always the case in our client plans, probably 99% of the time), then who cares?

Larry Starr...you hit the nail on the head here.  The participants are absorbing the costs which is the reason for my concern.  

If a service provider has responsibility for assembling a draft of the Form 5500 annual report, the provider might consider whether it has some obligation to inform the plan’s administrator about the administrator’s duty to consider whether the plan engaged in a nonexempt prohibited transaction (if the plan paid the distribution-services provider more than reasonable compensation for the services provided).

1 hour ago, jkharvey said:

Larry Starr...you hit the nail on the head here.  The participants are absorbing the costs which is the reason for my concern.  

And your concern is well placed in that situation, IM(NS)HO.