While the economy may be improving, everyone we know is still attempting to cut costs where they can. As you do this within your own company, we would like to share with you an idea for reducing the amount of fees paid for plan administration…allocate an annual administration fee to terminated participants.
As retirement plans age, they can accumulate a long list of former employees as plan participants. Most plans have mandatory distribution requirements for participants with account balances less than $5,000 (or $1,000). But these low statutory thresholds mean that a significant portion of former employees can keep their money in your plan. In the meantime you may be paying plan administration fees that are based on participant counts or total assets; either way having these former employees in your plan is costing you money.
It is within the regulations to charge a flat administration fee to terminated participants to cause them to share in these administration costs. We suggest a fee in the range of $50 – $75, an amount that is reasonable based on the actual costs you are being charged. The fee should be allocated on an annual basis.
Many plan documents are already vague enough with respect to the administration of participant accounts for terminated participants, however, yours may require a plan amendment to allow this. Contact your third party administrator to discuss this idea and establish a plan for implementing it. Implementation will not only require some revisions to your plan informational materials but also disclosure to all plan participants about how much the fee is, how it will be charged and when. These disclosures should also be included in termination distribution paperwork.
Finally, discuss with your third party administrator how the fee collected from terminated participant’s accounts will be used to offset plan expenses. Get the agreement for the use of the fee, how it will be charged and how often, in writing.
If you have any questions about how to accomplish this for your plan, please call your client service representative at BeachFleischman, or contact CariAnn Todd, the Director of our Employee Benefit Plan Audit Group via e-mail, firstname.lastname@example.org or directly at (682)203-6556.