How Should Plan Expenses Be Allocated To Participants?
Plan operational expenses are required to be allocated in a manner that is fair and reasonable. Understanding how to allocate these expenses begins with determining whether the fees are fixed for the plan, arise due to the processing of a transaction at the request of a participant, or if they are based on account balances. When determining the nature of the fees, consideration should be given to the following:
- Fixed expenses could include recordkeeping costs, audit fees, legal and consulting expense, and costs for discrimination testing, etc. Such expenses are incurred to operate and maintain the plan as a whole and are not determined based on individual account balances. Fixed expenses are typically allocated based on an equal dollar amount per participant.
- Transactional expenses relate to individual participants’ requests for the processing of hardship withdrawals, benefit distribution options analysis, distribution payments, rollovers, loan requests, fund transfers, reallocation of investments, etc. Since such transactional expenses relate to specific participants, they are charged to the respective participant to which the transaction relates.
- Expenses based on account balances, such as investment management fees for the plan, are usually allocated based on a pro-rata basis; allocated based on each participant’s account balance, as it relates to the plan as a whole.
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The information contained herein is not necessarily all-inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your plan’s individual facts and circumstances.
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