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Welcome to the Retirement Learning Center’s (RLC’s) Case of the Week. Our ERISA consultants regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, Social Security and Medicare. This is where we highlight the most relevant topics affecting your business. A recent call with a financial advisor in Nevada is representative of a common question on plan fees.
No, the Department of Labor (DOL) has opined that plan sponsors cannot use plan assets to pay for discretionary or optional plan amendments (as opposed to required plan amendments). The plan sponsor must cover the expenses in this case.
When a plan amendment is optional, the DOL considers it a “settlor” function (see the DOL’s advisory opinion: Guidance on Settlor v. Plan Expenses). Settlor functions are activities related to the formation, design, or termination of a plan. Fees for settlor functions cannot be paid for from plan assets; the plan sponsor must pay them.
In contrast, plan amendments that are required to keep the plan in compliance with new laws are not considered settlor functions. Such amendments can be paid for out of plan assets. While adding a student loan matching feature is beneficial to plan participants, it is optional and, therefore, considered a settlor function because it is not required to keep the plan in compliance with applicable laws.
For additional information, also see Advisory Opinion 2001-01A.
Conclusion
When considering how to pay for expenses related to plan amendments, it is important to distinguish between required vs. discretionary amendments. The costs of discretionary or optional amendments are settlor fees, for which plan sponsors must pay.