Fees to Terminate a 401(k)

Submitted by Denise Sowell on Sun, 2022-07-10 18:01

My client just told me that their small company has been sold and the 401(k) will be terminated. The current Trustee of the plan wants to charge each participant a portion of the termination fees of $5,000 for terminating the entire plan? Is this legal?



Submitted by William Tuttle on Mon, 2022-07-11 01:33

  • It is not the trustee’s role to determine what the participants should or should not pay. That is the responsibility of the plan sponsor (employer).
  • Not to mention, how cheap does the owner(s) have be. To want to charge the participants for a measley $5K in termination costs. When they undoubable made a bundle with the sale of the company.
  • Getting back to what can and can not be charged to participants. The employer has a fiduciary responsibility to pay only “necessary” fees from plan assets.
  • Administrative Expenses:  Participants can only be charged administrative expenses that are ultimately for the benefit of the participants.
  • Settlor Expenses: Participants can never be charged settlor expenses that benefit the 401(k) plan sponsor in more than an incidental way. These are the responsibility of the plan sponsor (employer).
  • As always the devil is in the details. For this reason and others such as I mentioned. Plan sponsors usually cover termination costs.


Add new comment

Log in or register to post comments