Plan Assets

ERISA permits plan assets to be used for the exclusive purpose of providing benefits to participants and their beneficiaries, as well as defraying reasonable expenses of administering the plan. The decision to use plan assets to pay for administration expenses is a fiduciary decision, therefore, plan sponsors and plan fiduciaries must understand what expenses are permitted to be paid from plan assets to avoid breaching their fiduciary duties.

Administrative v. Settlor Expenses

Administrative Expenses

Plan assets may only be used to pay plan benefits and reasonable expenses of the administration of the plan. Here are some examples of these types of expenses:

• Plan recordkeeping;
• Plan accounting;
• Claims processing;
• Participant communications;
• Third-party administration expenses;
• Educational seminars; and
• Fiduciary Insurance and Bonding.

Settlor Expenses

“Settlor” expenses, which are business expenses related to the plan but not for administration of the plan, cannot be paid by plan assets. The Department of Labor (DOL) views these types of expenses as a benefit to the employer; not the participants and beneficiaries. Therefore, the employer must pay for these types of expenses instead of the plan. These include:

• Legal or consulting services in connection with a plan formation and/or termination;
• The decision to make a discretionary amendment to a plan;
• Plan design studies;
• Correction of annual filing failures (i.e., Form 5500); and
• Preparation of the initial plan and trust documents.