When employees terminate employment or retire, some plans are written to allow former employees the flexibility of keeping their plan monies in their former employer’s plan. Employers are asking whether such flexibility is desirable from an employer’s standpoint. Yes, according to this article: Is Your Defined-Contribution Plan Leaking? No, according to one advisor as reported in this article: Advisers to make funds transparent to avoid suits.
However, something not really discussed in either article is the fact that the DOL now permits employers to allocate the administrative expenses associated with these former employee accounts to such accounts (i.e. active participants need not share in the expenses associated with these accounts). However, if employers want to take advantage of this rule, their plan documents will have to be amended accordingly. In addition, employers should make sure that the Summary Plan Description and any communication documents sent to participants and former participants are updated to reflect the use of the rule.
Excerpt from the DOL’s Field Assistance Bulletin 2003-3 which addresses this practice:
Some plans, with respect to which the plan sponsor generally pays the administrative expenses of the plan, provide for the assessment of administrative expenses against participants who have separated from employment. In general, it is permissible to charge the reasonable expenses of administering a plan to the individual accounts of the plan’s participants and beneficiaries. Nothing in Title I of ERISA limits the ability of a plan sponsor to pay only certain plan expenses or only expenses on behalf of certain plan participants. In the latter case, such payments by a plan sponsor on behalf of certain plan participants are equivalent to the plan sponsor providing an increased benefit to those employees on whose behalf the expenses are paid. Therefore, plans may charge vested separated participant accounts the account’s share (e.g., pro rata or per capita) of reasonable plan expenses, without regard to whether the accounts of active participants are charged such expenses and without regard to whether the vested separated participant was afforded the option of withdrawing the funds from his or her account or the option to roll the funds over to another plan or individual retirement account.
Something to consider. . .