Payment of Plan Termination Expenses

[richard]

I know the DoL doesn't allow a plan's payment of Settlor Expenses. (I forget the cite, can someone help on this.)

However, is the following rationale correct?

The termination of a pension plan involves two types of activities (and related fees).

The first type of activity is the business decision of whether or not to terminate the plan. The issues to be considered include the cost of termination, the need to fully vest employees, the adverse employee relations, etc. This is a business decision, so I believe the fees charged here could not be paid by plan assets.

However, the second type of activity are those tasks in implementing a plan termination; these are part of the administration and continued qualification of a plan. These tasks include plan amendments (or at least the GUST amendments), the 5310 filing, and the administration of employee notices, elections, and benefit payments. So, I believe these can be paid from plan assets.

Since often the decision-making process is fairly cut & dried ("I cannot afford anything for my employees!"), most of the expenses could be paid from plan assets.

OK, let's hear your thoughts. Any actual discussions with DoL on this? Also, has anyone actually had the DoL object to such payments?

Thanks.

[Guest Sherry Porter]

Check out DOL Advisory Opinion 97-03A (available on the DOL's website at www.dol.gov/dol/pwba/public/programs/ori/advisory97/97-03a.htm) which gives us some guidance on the DOL's view with regard to charging administrative fees to a plan. The Advisory Opinion does address the payment of expenses related to the termination of a plan. Expenses related to the actual decision to terminate the plan are not properly payable from the plan since the actual decision making process is a settlor function. However, activites undertaken to implement the plan termination are generally properly payable by a plan. Of course, such expenses must be reasonable, allowed under the governing plan documents and otherwise consistent with ERISA (i.e. not a prohibited transaction and not in violation of the fiduciary rules). The advisory opinion even gives some examples of what type of expenses are properly payable from plan assets. Good luck!

[Kirk Maldonado]

Regarding the settlor/fiduciary character of the various duties regarding the termination of a plan, see the DOL letter to John Erlenborn, which I think was issued in 1986.