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Payment of Plan Expenses: Clearing up Some Grey Area
Last Updated: March 27, 2014
As a fiduciary to a retirement plan, it’s clear that there are services that can and cannot be paid from plan expenses. Sometimes the delineation between what can and what cannot be paid is communicated as straightforward as “If it’s a fiduciary service, you can pay it from plan assets; if it’s settlor, you can’t.” Although this statement is true, the problem with it is that sometimes there is grey area in these services; sometimes something seems like it would be fiduciary in nature that really isn’t, and as a result, should not be paid out of plan assets. To help clear up some grey areas, we’ve provided a plan expenses chart for your reference.[1] Even with this chart, it’ll be evident that with some expenses, you simply cannot look at a chart and make a determination; instead, facts and circumstances surrounding the need for the expense must be reviewed.
If you have any questions about this chart or about plan expense in general, please contact Pension Consultant’s Vendor Service team.
| Expenses Payable by the Plan | Expenses NOT Payable by the Plan | Comments | |
| 1. Plan-Wide Administrative Services | |||
| Savings Plan & Record Keeping Fees |
X |
|
|
| Custodial Services Fees |
X |
|
|
| Participant Communications |
X |
|
|
| Trustee Services |
X |
|
|
| Independent Fiduciary |
X |
|
|
| Compliance Testing |
X |
|
|
| Accounting & Audit Fees related to Form 5500 Preparation |
X |
|
|
| Submission to IRS to Request Determination Letter |
X |
|
|
| Plan Amendment required to comply with existing ERISA/Tax law |
X |
|
|
| Soliciting, evaluating proposals from new, existing vendors |
X |
|
|
| 2. Settlor Decisions |
|
|
|
| Plan Design for new plan or amendment not required to comply with ERISA/Tax law |
|
X |
|
| Draft Plan Documents after design established and after formal action taken to adopt amendment |
|
X |
|
| Legal and consultation fees associated with terminating plan |
|
X |
|
| 3. Insurance and Bonding |
|
|
|
| Fiduciary Liability Insurance |
X |
|
|
| Bonding |
X |
|
|
| 4. Investment-Related Services |
|
|
|
| External portfolio manager fees |
X |
|
|
| Sales charges (loads and commissions) |
X |
|
|
| Investment manager agreement termination fees |
X |
|
|
| Product termination fees |
X |
|
|
| 5. Correction of Errors |
|
|
|
| Qualification Errors |
|
X |
|
| Fiduciary Error Correction |
|
X |
|
| 6. Actuarial Services |
|
|
|
| Form 5500’s Reconcile APBO |
? |
? |
Depends upon the purpose, will need more information |
| Actuarial Valuations |
? |
? |
Depends upon the purpose, will need more information |
| Required Contributions/Calculations |
X |
|
|
| Strategic Contributions/Calculations |
|
X |
|
| OPEB estimated disbursements |
? |
? |
Depends upon the purpose, will need more information |
| OPEB discussions and revised benefit limits in the 401(h) |
? |
? |
Depends upon the purpose, will need more information |
| Asset/liability studies |
? |
? |
Depends upon the purpose, will need more information |
| Performance reporting and investment manager searches |
X |
|
|
| Plan study of options available to comply with laws |
|
X |
|
| Nondiscrimination testing for tax qualification |
X |
|
|
| Nondiscrimination testing of proposed plan change |
|
X |
|
| Determination of minimum funding requirements |
X |
|
|
| Determination of FAS87 or FAS106 expense for accounting purposes |
|
X |
|
| Determination of maximum deductible employer contributions |
? |
? |
Depends upon the purpose, will need more information |
| Participant communications (e.g., employee statements, spds) |
X |
|
|
| Asset/liability forecasting relating to plan design or financial accounting issues |
|
X |
|
| Asset/liability forecasting relating to pension funding or investment policy |
X (Investment Policy) |
X (Pension Funding) |
|
| Modeling the financial impact of proposed changes in a benefit plan |
|
X |
[1] The Department of Labor (“DOL”) previously issued guidance regarding expenses that may be paid from ERISA plan assets. DOL Adv. Op. 2001-01A (Jan. 18, 2001). This Advisory Opinion provides a discussion—including a list of practical hypotheticals to aide this discussion—of the principles applicable to distinguishing settlor from plan expenses.
PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.
