Settlor vs. Plan Expenses

Plan sponsors frequently ask which of their retirement plan’s expenses can be paid with assets of their plan. 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.

The DOL divides plan fees into two broad categories:

  1. administratively required fiduciary expenses that are payable from plan assets
  2. settlor expenses that are not

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, recordkeeping, 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 we 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; and 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.

For additional guidance on settlor and plan expenses from the DOL, please see here.

While some of these are straightforward, there are of course a few odd situations. For a quick reference, Groom Law put together a nice chart to reference. Click here to see the chart.



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