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Allowable Plan Expenses: Can the Plan Pay?
Ron J. Church • Nov 05, 2020
The payment of expenses by an ERISA plan (401(k), defined benefit plan, money purchase plan, etc.) out of
plan assets is subject to ERISA’s fiduciary rules. The “exclusive benefit rule” requires a plan’s assets be
used exclusively for providing benefits. ERISA also imposes upon fiduciaries the duty to defray reasonable
expenses of plan administration. General principles of allowable expenses include the following:
- The expenses must be necessary for the administration of the plan.
- The plan’s document and trust agreement must permit use of plan assets for payment of expenses.
- The expenses must be reasonable and incurred primarily for the benefit of participants/beneficiaries.
- The expense cannot be the result of a transaction that is a prohibited transaction under ERISA, or it must qualify under an exemption from the prohibited transaction rules.
In light of today’s plan fee environment, it is incumbent upon fiduciaries to request full disclosure of fees
and expenses, how they breakdown with services provided, as well as a request for full explanation of who
will be the recipient of fees. Ultimately, the ability to pay expenses from a plan trust is a facts and
circumstances determination that needs to be made by plan fiduciaries. Because it is possible that the DOL
may challenge such determinations it is important that fiduciaries consult ERISA counsel prior to paying
questionable expenses from a plan trust and document the decision and reasoning.
For more information on this topic, contact your financial professional. This material was created to provide accurate and reliable information on
the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other
professional advice. The services of an appropriate professional should be sought regarding your individual situation.
The material presented was created by an outside vendor (or third party).
Ronald J. Church is a
registered representative with and securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC. Investment advisory
services offered through Ironwood Retirement Plan Consultants (DBA of Barnes Wealth Management Group, a Registered Investment Advisor).
Ironwood Retirement Plan Consultants and Purshe Kaplan Sterling Investments are separate and non-affiliated companies.ACR# 353422 7/20