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Settlor v. Non-Settlor Plan Expenses

Plan sponsors often question which expenses can be paid with assets of their plan. Under ERISA, only certain expenses may be paid from plan assets, and it is very important to note that the decision of whether or not to pay a given expense from plan assets is a fiduciary act. The “exclusive benefit rule” under ERISA stipulates that plan assets may only be utilized to pay plan benefits and reasonable administrative expenses. The Department of Labor (“DOL”), which has oversight for fiduciary breaches and prohibited transactions under ERISA, has indicated that business expenses not related to plan administration are “settlor expenses” (See:Guidance on Settlor v. Plan Expenses). Important points regarding, and examples of, these two very distinct types of expenses are as follows:

Settlor Expenses

➢May not be paid from plan assets

➢Generally, benefit the plan sponsor

➢Examples include expenses for: Consulting on whether or not to adopt a plan, preparation of initial plan/trust documents, consulting on whether or not to adopt, and preparation of, discretionary plan amendments (i.e. not necessary to keep the plan qualified) and consulting on whether or not to terminate a plan

Administrative Expenses

➢Fiduciary act and, therefore, must be reasonable

➢Necessary for plan administration and/or investment management

➢Must be for the benefit of plan participants

➢Plan and/or trust document(s) should specifically permit payment

➢Examples include expenses for:Periodic valuations and allocations, tax forms preparation, required notifications, reports and statements, investment-related, distribution/loan calculations/processing, fidelity bond and fiduciary insurance premiums, PBGC premiums, required plan amendments, corporate trustee and auditor, if applicable, and implementing plan termination

➢Some may be allocated to specific accounts, if notice to participants provided

Plan sponsors should carefully and properly determine whether or not any particular expense may be paid from plan assets and should monitor plan expense payments carefully. Certain expenses may benefit both plan participants and the plan sponsor, in which case a portion of the expense may be charged to the plan, but a portion must be paid by the plan sponsor. Specific rules and limitations apply where plan expenses are advanced by the plan sponsor.

Please feel free to contact our Firm if you would like to discuss any of the foregoing information in greater detail. We would welcome the opportunity to consult with you.

© Boutwell Fay LLP 2019, All Rights Reserved.This handout is for information purposes only, and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us.The information contained in this article is effective as of January 31, 2019

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