Which Plan Expenses Can Be Paid Out Of The Plan Assets?
Plan sponsors should be mindful as to which expenses are allowed to be paid out of the plan’s assets and which expenses are the responsibility of the plan sponsor. According to ERISA regulations, plan assets can only be used for two reasons: to pay benefits to participants, and to pay the reasonable expenses to administer the plan.
So what are reasonable expenses to administer the plan? Such expenses would include operational expenses only and must be incurred to maintain the plan. Examples of such expenses could include:
- Recordkeeping costs
- Discrimination testing costs
- Transactional expenses (related to benefit payment option calculations, hardship withdrawals, loan applications, rollovers, etc.)
- Audit fees
- Fees associated with plan amendments, when they are required by law
- Certain other professional fees (including legal and consulting, if required to maintain the plan)
Administration or operational expenses do not include expenses related to setting up the plan or amending the plan (for other than amendments required to be in compliance with current regulations). Expenses incurred for legal or consulting services relating to establishing the plan would all represent “settlor” expenses and could include:
- A comparison of various plan design options
- An analysis of the associated future costs to the employer
- Other fees related to establishing the plan or amending it to add new features that are not required by law (such as adding a loan program to the plan)
Settlor expense cannot be paid out of plan assets. These costs are the responsibility of the plan sponsor.
To stay in compliance with ERISA regulations and as part of their fiduciary responsibilities, plan sponsors should be mindful to only have allowable plan expenses paid from plan assets.