To business owners, retirement plan sponsors, plan trustees, and even many third-parties who work on 401K retirement plans:
It is important to understand the options a business owner/plan sponsor has when paying for certain plan expenses.
The certain plan expenses we are focused on for today are:
- Advisory Fees
- RecordKeeping Fees
- Bundled/Un-Bundled (Third-Party) Administrative Fees
Here is an easy way we break down the payment options for the 3 expenses listed above:
OPTION A) SPREAD THE EXPENSES OUT TO EVERYONE IN THE PLAN
- Business owner/Plan sponsor can elect to allow these 3 expenses to be paid out of your plan assets. The expenses will be pro-rated to all participants with balances in the plan, based on the size of their accounts relative to the overall plan.
OPTION B) HAVE THE COMPANY PAY THE EXPENSES FOR THE PLAN DIRECTLY
- Business owner/Plan sponsor can elect to have these 3 expenses paid out of company account. By doing so, the company can take these 3 expenses as top-line deductions on their business tax return.
Based on an analysis of the business and 401k plan, we typically have recommendations on what we think is the best way for a company to pay for these expenses.