Charlene Kelly Published in The Prairie Post

In “Paying Plan Expenses With Plan Assets,” in the August issue of The Prairie Post, Charlene Kelly advises employers on determining which plan expenses can and cannot be properly paid from plan assets. According to ERISA, she explains, reasonable expenses necessary for the operation of a plan can be paid from plan assets. The guidelines are defined the Department of Labor (DOL) which categorizes plan expenses as relating to either "settlor" functions – activities that pertain to the formation of plans -- or “fiduciary” functions – expenses incurred to implement the plan establishment and termination; only fiduciary functions are allowed to be paid by plan assets.

Charlene outlines DOL guidance, issued in a 2001 Opinion Letter, which breaks plan expenses down into 20 categories of “plan paid expenses” and 10 categories of “employer paid expenses. While most costs can be classified under the fiduciary/settlor criteria, she says that some expenses rest in a gray area and require more comprehensive analysis and justification. In 2003, another DOL Bulletin was issued to address two areas relating to allocating plan expenses in defined contribution plans: (1) pro rata versus per capita expensing and (2) expenses properly chargeable to the account of an individual participant. There’s a general lack of guidance on the proper procedure for allocating plan expenses among participants, but ERISA and associated regulations address allocation procedures for certain specific plan expenses, such as reasonable costs for copying requested plan documents or making a plan loan. Generally, the terms of the plan control the method for allocating expenses among plan participants. However, if the plan is silent, a plan fiduciary must decide the appropriate method in a prudent manner and “solely in the interest of participants.” Among the expenses that the DOL concluded may be charged to an individual participant’s account are hardship withdrawals and check writing for monthly benefit payments.

“Plan expense issues often involve a facts and circumstances analysis. While some expense allocations appear clear cut, many require a weighing of the roles and responsibilities surrounding the expense.”