Reimbursement of Plan Sponsor by Plan for certain Plan Expenses

[Guest SCUDDESLER]

Assume that a plan document provides that a plan will pay certain eligible expenses, e.g., reasonable plan administration expenses. The annual administration bill is presented to the plan sponsor. The plan sponsor pays the bill and then seeks reimbursement from the plan (in lieu of presenting the bill to the plan and then having the plan write a check). If the plan reimburses the plan sponsor, does such reimbursement result in a prohibited transaction and, if so, is there an applicable exception.

Also, what limits, if any, apply to how far back a plan sponsor may request reimbursement. For example, suppose that the plan sponsor has paid the past four annual administration bills and now would like the plan to reimbursement it for all four bills. Can the plan simply write a single check to reimburse the plan sponsor for four years of plan administration? What if the plan sponsor had requested reimbursement for eight years? Ten years?

Thanks so much for your help.

[Guest halka]

I believe deciding whether to reimburse the Employer is a fiduciary decision. Don't know of any hard timelines on staleness, but there is some consensus that reimbursement should occur "shortly" after plan incurred the original expense. To allow reimbursement that extend over multiple years would allow the sponsor to burden (or benefit) current participants vis a vis past participants.

DOL Adv Op 97-03 offers some limited guidance.

[Guest SBosworth]

Reimbursement must be authorized by the Plan's terms. Many plans state that expenses may be paid by the plan if not paid by the Employer. Under a conservative view, this language would be insufficient. You might want to consider the following provision that was recommended to me by another practitioner:

The Employer shall pay all expenses of administering the Plan to the extent not paid out of the Trust Fund. To the extent permitted under ERISA Section 408©(2), the Employer shall have the right to be reimbursed from the Trust Fund for the amount of expenses properly and actually incurred by the Employer, in the performance of its fiduciary duties under the Plan, within a reasonable period thereafter, provided that the Employer has given an appropriate notice to the Trustee at the time that the expense was paid.

Reimbursement for prior plan years (e.g., after the Form 5500 filing for such years) is particularly risky for a defined contribution plan.

In 2001, I had to address this issue with a DOL auditor who challenged a reimbursement for plan expenses that could have been paid directly by the plan. Sorry, but I do not recall the outcome.

[KJohnson]

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