3941 / Are plan expenses deductible by an employer?

Broker fees paid by a qualified plan are not separately deductible by an employer and are subject to the deduction limits of IRC Section 404(a) ( Q 3735, Q 3750).¹ Amounts that an employer reimburses a plan trustee for amounts paid to an investment manager to manage and invest plan assets also are not deductible under IRC Sections 162 or 212.

Amounts that an employer pays directly to an investment manager in connection with the management of a plan’s assets apparently are deductible and are not treated as plan contributions under IRC Section 404.² The distinction appears to be that brokers’ fees are directly related to the purchase of an asset and thus are part of the cost of the securities, but that investment managers’ fees, as well as legal, accounting, and trustee fees, are recurring administrative expenses that do not vary with the number or volume of investment transactions.³

Some plans allocate plan expenses to the accounts of participants. The IRS has issued guidance permitting such plans to pay these expenses on behalf of active employees while charging the accounts of former employees their proportionate share of such expenses.⁴