(b)lines Ask the Experts – Form 5500 Fee Info Doesn’t Match Plan Expenses

I am commencing the process of reviewing the 2014 Form 5500 for our calendar-year ERISA 403(b) plan.

“I noticed that the fees listed in Schedule C are lower than what I calculate plan expenses to be based on the service provider disclosures that are delivered to us, as well as other documentation. Shouldn’t these figures reconcile?” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:

The Experts are glad to see that you are paying careful attention to your Form 5500 review and asking questions when items on the form do not appear to be correct, as any diligent plan sponsor should!

Though it would be wonderful if the dollar amount of fees listed on Schedule C reconciled to actual plan expenses, there are a variety of reasons they will not. These reasons include, but are not limited to, the following:

1)         There are insurance products present in the plan, such as 403(b)(1) fixed and variable annuities. Fees for such products are generally reported on Schedule A, Insurance Information, and not on Schedule C.

2)         There are plan expenses that are paid directly by the plan sponsor, as opposed to being paid from plan assets. Such expenses are NOT reported on Schedule C, or anywhere else on the Form 5500 for that matter; though such fees may be included in auditors’ financial statements.

3)         There are service providers that receive ONLY eligible, indirect compensation. Such entities need not report the dollar amount of their fees on Schedule C, provided that the plan receives required disclosures from the service provider, such as the required fee disclosures under 408(b)(2) of the Employee Retirement Income Security Act (ERISA).

Thus, the total dollar amount of fees disclosed on Schedule C can vary greatly from the actual amount of expenses incurred by the plan in any given year.

Thank you for your question, and if any other readers have Form 5500-related questions as filing season approaches, feel free to Ask the Experts!


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.