Defined Contribution Plans May Charge Former Employees' Accounts For Administrative Expenses
For a variety of reasons, many employers sponsoring 401(k) and other defined contribution plans do not charge some or all of the plan's administrative expenses directly to the accounts of participants. Many of those employers, however, have considered charging certain plan administrative expenses only to the accounts of former employees who are still participants, but have been reluctant to do so due to concern that such a practice would violate certain Internal Revenue Code (the "Code") regulations. Those regulations provide that a participant's consent to a distribution is not valid if the plan imposes a "significant detriment" on the participant for not consenting to the distribution. As a result of a recent Internal Revenue Service (the "IRS") ruling, plan sponsors may wish to re-examine their expense allocations.