Allowable Plan Expenses

[Guest slrogers]

We recently purchased another company and are in the process of merging their 401(k) Plan into ours. We have incurred expenses with our attorney for legal advice related to the merger as well as the preparation of the merger agreement and amendment and the Sarbanes Oxley notice.

Our plan document does allow us to use forfeitures to pay plan expenses but I'm wondering if these specific expenses would qualify to be paid by the plan.

Any feedback would be appreciated.

[JanetM]

Sounds more like settlor function than plan expense. I would hesitate to pay legal fees from plan assets.

[Kirk Maldonado]

slrogers:

The DOL has provided some very useful guidance on this topic, some of which addresses situations very similar to yours.

[R. Butler]

http://www.dol.gov/ebsa/programs/ori/advis...01/setq&are.htm

[Guest slrogers]

Thank you all for your responses. I read the guidance from the DOL and I'm now wondering if some of the expenses we have been paying thru the Plan were proper.

Example: We recently amended our Plan to allow for In-Service distributions at age 65. We paid our attorney's fees from the Plan. Was this improper?

In deciding which expenses to pay, my deciding factor has always been who is benefitting from the expense. If it's a Plan Design study that we are undertaking to find ways to save the Employer money, I wouldn't pay it from the Plan. If it's a Plan amendment that provides a benefit to the employees (adding loans, enhancing vesting, etc.), I would pay it from the Plan.

Anyone care to comment?

[R. Butler]

In deciding which expenses to pay, my deciding factor has always been who is benefitting from the expense. If it's a Plan Design study that we are undertaking to find ways to save the Employer money, I wouldn't pay it from the Plan. If it's a Plan amendment that provides a benefit to the employees (adding loans, enhancing vesting, etc.), I would pay it from the Plan.

http://www.dol.gov/ebsa/programs/ori/advis...01/2001-01a.htm

Specifically --

In the context of tax-qualification activities, it is the view of the Department that the formation of a plan as a tax-qualified plan is a settlor activity for which a plan may not pay. Where a plan is intended to be a tax-qualified plan, however, implementation of this settlor decision may require plan fiduciaries to undertake activities relating to maintaining the plan’s tax-qualified status for which a plan may pay reasonable expenses (i.e., reasonable in light of the services rendered). Implementation activities might include drafting plan amendments required by changes in the tax law, nondiscrimination testing, and requesting IRS determination letters. If, on the other hand, maintaining the plan’s tax-qualified status involves analysis of options for amending the plan from which the plan sponsor makes a choice, the expenses incurred in analyzing the options would be settlor expenses.