Plan Legal Documents as Settlor Functions

[CLE401kGuy]

Talking to the attorney who preps our plan documents today and he's of a mind that any plan document fee including elective amendments and plan termination fees can be paid out of plan assets - I'm pretty sure I was at an ASPPA sponsored event where the speaker indicated that elective fees such as elective amendments and plan termination fees were considered settlor fees and therefore could not be paid out of plan assets - anyone care to chime in? Thanks

[QDROphile]

I agree that sponsor elective design changes, as reflected in plan amendments, are not eligible to be paid out of plan assets. Compliance amendments may be different, but what happens when there are choices among complaint options and related changes depending on choices? It can be hard to draw the line. I try to get the sponsors to suck it up and pay for the cost of amendments.

[Kevin C]

The DOL has a good description of what they consider Settlor functions on their website. You'll find it more in line with your opinion than the attorney's.

http://www.dol.gov/ebsa/regs/AOs/settlor_guidance.html

[Peter Gulia]

While I respect the desire to find a fully thought-through answer, consider also a practical question:

Which better serves the service-provider business:

Restraining an employer's desire to pay a plan-amendment expense from the plan's assets (so that the service provider can avoid blame for having "allowed" its customer to give an instruction for what later might turn out to have been an unwise decision)?

Accepting the fiduciary's decision to pay a plan-amendment expense from the plan's assets (so that the employer does not perceive the service provider as imposing the expense on the employer)?

[Kevin C]

I guess it depends on your business model. We've fired several clients over the years because they insisted on taking improper actions with their plans.

A couple of other practical questions:

1. Is the plan paying $X of fees for a settlor function any less a PT than the employer withdrawing $X from the plan for use by the employer?

2. If the plan pays $X of fees for something that is clearly a settlor function, how are you going to answer the PT question on the Form 5500 / 5500-SF?

[Peter Gulia]

If a TPA prepares a draft Form 5500 that answers the prohibited-transaction query Yes and the plan's administrator changes the answer to No, does the non-fiduciary TPA have any remaining responsibility?

[Kevin C]

I think a non-fiduciary TPA covered by Circular 230 would need to advise the client of the possible consequences of the noncompliance / omission under section 10.21 of circular 230.

From the DOL side, I can't think of what else would be required, although a letter like the above might come in handy. It wasn't the scenario from your post #6, but I did see a situation where a client's former, non-fiduciary TPA got into trouble with the DOL/DOJ for helping a Trustee avoid reporting a series of PTs on Form 5500.