Charging Participants for Distributions (Posted November 15, 2001) Technical Tip 24: The following question and answer are from the DOL Q&A Session at the 2000 ASPPA Annual Conference: Many 401(k) plans charge a participant for a distribution of the participant’s benefits. For example, I was recently involved in a case where a major mutual fund company, in a bundled arrangement, charged approximately $50 for distributions, but waived that charge if the distribution was rolled over into an IRA funded with their investment product. Is it proper to charge individual participants, or their accounts, for distributions of their retirement benefits? DOL Response: The issue of participant charges for distributions is the subject of pending requests for guidance from the Department which are currently under consideration. The question also raises the issue of reasonableness of fees, that is, is the charge for the distributions reasonable or excessive (e.g., 100 distributions times $50 equals $5,000). The plan fiduciaries must evaluate the services and the costs in making that decision. See the Homer Elliott Advisory Opinion (94-32A). That DOL Opinion states, in part: "As appears from the foregoing, section 206(d)(3) of ERISA expressly grants an alternate payee the right to receive pension plan benefits payable under a QDRO. In general, it is the view of the Department that a plan may not encumber the exercise of a right mandated by Title I of ERISA by imposing conditions on the exercise of the right that are not contemplated by the statute.1 We note, in this regard, that nothing in Title I of ERISA requires or permits a plan to impose any separate fees or costs (apart from the appropriate allocation of reasonable administrative expenses of the plan as a whole) in connection with a determination of the status of a domestic relations order or the administration of a QDRO. Accordingly, it is the view of the Department that imposing a separate fee or cost on a participant or alternate payee (either directly or as a charge against a plan account) in connection with a determination of the status of a domestic relations order or administration of a QDRO would constitute an impermissible encumbrance on the exercise of the right of an alternate payee, under Title I of ERISA, to receive benefits under a QDRO. Additionally, in the Department's view, because Title I of ERISA imposes specific statutory duties on plan administrators regarding QDRO determinations and the administration of QDROs, reasonable administrative expenses thus incurred by the plan may not appropriately be allocated to the individual participants and beneficiaries affected by the QDRO." _________________________ 1The Department distinguishes such statutorily-granted rights of participants and beneficiaries from rights that a plan may, but is not required to, provide under Title I of ERISA. Thus, for example, under ERISA sections 404(c) and 408(b)(1), and the Department's implementing regulations, reasonable expenses associated with a participant's exercise of an option under the plan to direct investments or to take a participant loan may be separately charged to the account of the individual participant, provided such charges are consistent with Titles I and IV of ERISA and in accordance with the documents and instruments governing the plan. Caveat: The answer was drafted by Fred Reish and Brad Huss, the program moderators, based on their understandings of discussions with four senior officials of the Pension and Welfare Benefits Administration (PWBA) of the U.S. DOL. As a result, it does not represent a formal or binding position statement by the PWBA. However, the quoted language from the Advisory Opinion is official DOL guidance. Comment by the RL&R ERISA attorneys: The rationale of the advisory opinion--that plans cannot charge participants for the exercise of a legal right--suggests that plans cannot charge participants for a distribution of benefits--at least for the primary form of benefit. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.