Having recently finished our client meeting where we benchmark plan recordkeeping fees, I have received more than a few questions about paying for the audit and investment consulting fees from the plan’s assets. Therefore, I thought I would take some time in this blog to spell out which fees can, and which cannot be paid from plan assets.
Under ERISA, certain specific expenses may be paid from plan assets. This concept has been supported by the Department of Labor (DOL) on several occasions in the form of Advisory Opinions or an Interpretive Bulletin. If your plan is not subject to ERISA, check with your legal counsel to see which fees can be paid by the plan. At a minimum, the plan and/or trust document must permit expenses to be paid from plan assets. In my experience, most do, however, you will want to be sure.
The DOL divides plan fees into two broad categories – (1) administratively required fiduciary expenses that are payable from plan assets and (2) settlor expenses that are not. Let me explain.
According to Groom Law[1], “In traditional trust law parlance, a 'settlor' is the party who designs, establishes, and funds a trust, while the 'fiduciary' administers the trust in accordance with the terms adopted by the settlor. Thus, an employer setting the terms of its employee benefit plan is a settlor, but when the employer administers the plan, it is a fiduciary. Settlor decisions are not subject to ERISA’s fiduciary duties.”
The DOL has also consistently taken the position that while expenses associated with a fiduciary’s administration of a plan may be paid from the assets of the plan, expenses related to settlor decisions must be borne by the employer. For examples of the DOL’s thought process, see their Guidance on Settlor v. Plan Expenses[2].
Fiduciary expenses are those that relate to the ongoing administration of the plan such as plan audits, nondiscrimination testing, trustee fees, recordkeeping fees, costs associated with preparing regulatory filings such as Form 5500, or distributing mandatory participant disclosures, investment consulting or management, and “required” plan document amendments.
Settlor expenses are expenses I like to consider “business decisions” such as those that relate to the establishment, design, and termination of a plan; plan design studies; projections to determine the financial impact of a design change; legal and consulting fees in connection with the decision to terminate a plan; and “discretionary” plan amendments. The DOL views settlor expenses as expenses that must be paid by the plan sponsor employer, not by the plan.
If you would like to know more about the different types of fees, see our paper A Guide to Retirement Plan Fees & Expenses.
For additional guidance on settlor and plan expenses from the DOL, please see here.
And finally, while some of these are straightforward, I like to have a source for the odder situations. For a quick reference, Groom Law put together a nice chart I like to refer to. Click here to see the chart.
Should you have any questions, please reach out to a Multnomah Group consultant.
Notes:
[1] https://www.groom.com/wp-content/uploads/2017/09/144_planexpenseshrmfinal.pdf
[2] https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/advisory-opinions/guidance-on-settlor-v-plan-expenses
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