Using Retirement Plan Assets to Pay Plan Administrative Expenses

We are sometimes asked: when is it okay to use retirement plan assets to pay for plan administrative expenses? The question often comes up in the context of a restatement of the plan document, the preparation of a new SPD or some other project where the costs may be significant. Fortunately, the DOL has issued a considerable amount of guidance over the years addressing that issue and two DOL Advisory Opinions are particularly informative: Advisory Opinion 97-03A (January 23, 1997) and Advisory Opinion 2001-01A (January 18, 2001). Based on that guidance, we offer the following general comments.

The DOL considers certain services and costs associated with the establishment, termination, or design of plans to be employer or “settlor” functions. In general, expenses arising out of these settlor functions cannot be paid out of plan assets. The DOL has specifically identified the following items as settlor functions for which costs cannot be paid from plan assets:

• Cost of a feasibility or plan design study for a 401(k) plan
• Costs to establish a plan
• Cost of plan amendments that are not required to maintain a plan’s tax qualified status
• Fees related to an economic analysis of whether to terminate the plan
• Fees for union negotiations concerning plan design and operation
• Fees for disclosure of information that is not plan related, even if included in a document that also contains plan information
• Fees to determine the impact of plan events on an employer’s financial statements
• IRS or DOL penalties
• Expenses related to plan mergers or spin-offs

On the other hand, the DOL has identified the following items that can be paid from plan assets so long as the expenses are reasonable in amount and necessary for the operation of the plan:

• Fees incurred to amend a plan if the amendment is required to maintain a plan’s tax qualified status or to comply with Title I of ERISA
• Fees incurred to implement a change in plan operation resulting from an amendment, regardless of the purpose of the amendment (i.e., maintain tax qualification or other reason)
• Fees for routine nondiscrimination testing
• Fees related to obtaining an IRS determination letter
• Fees related to the disclosure of plan information
• Fees for outsourced plan administration
• Expenses for implementing a plan termination
• Premium payments for an ERISA bond or fiduciary liability insurance if the insurance permits full recourse against a fiduciary who violates his or her fiduciary duties
• Plan administration expenses, including recordkeeping, claims processing, investment management, nondiscrimination testing, and government filings.

Two final thoughts about this issue. First, in every instance, the plan administrator must make an independent determination as to the reasonableness of the expense incurred even if the nature of the expense is such that it could be paid from plan assets. (Put another way, excessive fees and costs may not be paid by the plan even if the fees or costs were incurred for services that can be considered necessary for the operation of the plan.) Second, plan assets can never be used to reimburse the employer for costs or expenses that it has paid on behalf of the plan. So if you want to use plan assets to cover administrative expenses, the expenses must be directly paid by the plan.