Can the Cycle 3 plan restatement fee be paid from plan assets?

[David Peckham]

Is a mandatory plan restatement (for example, a Cycle 3 restatement) considered a settlor function by the DOL? Or can the fee be paid from plan assets?

[Peter Gulia]

There is no Labor department rule.

In ERISA Advisory Opinions, PWBA (now EBSA) has suggested some distinctions between an amendment for a provision a plan sponsor adds or changes as an element of one’s plan design, and an amendment made to state provisions needed to meet conditions for Internal Revenue Code § 401(a) or § 403(b) treatment.

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2001-01a

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/settlor-expense-guidance

An ERISA Advisory Opinion may be relied on only by the particular requester, and only to the extent of the facts the requester specified.

Some fiduciaries endeavor to estimate the portion of a restatement fee one treats as attributable to plan administration (which so might be paid or reimbursed from plan assets).

If the only expense is a recordkeeper’s or TPA’s fixed fee that does not vary with the user’s choices for the plan’s provisions, a fiduciary likely must estimate the relative portions between settlor expense and plan-administration expense.

Or if a plan sponsor asks for nothing new and merely adopts a restatement solely as needed to maintain tax-qualified treatment, a fiduciary might reason that a whole fee, if reasonable and prudently incurred, is plan-administration expense.

Further, consider that some service providers by contract set restrictions on what expenses may be paid from a plan-expenses account the service provider controls or processes. Some do not allow a payment or reimbursement of a plan-documents fee from a plan-expenses account.

As always, a plan fiduciary should get its lawyer’s advice.

[Nate S]

Since the restatement is required to maintain the Plan's tax-qualified status, which benefits the participants, it's administrative and may be charged to the Plan.

[C. B. Zeller]

The position expressed by Nate S is, in my experience, the most common position among practitioners.

However, some practitioners may choose to incorporate discretionary plan design changes into their restatement; for example they may choose to change the plan's eligibility requirements or vesting schedule at the same time they are restating the document. If those changes are included in the fee for the restatement - or even if no changes are made, but if the TPA consults with the plan sponsor on possible plan design changes, and the charge for the consulting is included in the fee for the restatement - then you should think carefully about whether or not some part of the restatement fee might not actually be a settlor expense that may not be paid from plan assets.

[Peter Gulia]

Many (but not all) restatements are simple and inexpensive, and involve little change beyond what’s needed to tax-qualify. Likewise, many are done with the plan sponsor engaging no professional beyond the recordkeeper or TPA.

But what if the expenses for a restatement were $500 for the recordkeeper’s processing fee, and $3,500 for the plan sponsor’s lawyers to review and edit the adoption agreement and its attachments? And what if about half the lawyers’ work was about helping the employer thoughtfully reconsider plan-design points?

(Some plan sponsors use a restatement as an efficient time to state or consider changes. One might prefer to focus attention once, rather than wait. And a plan sponsor might prefer to get more done within one processing fee.)

In those circumstances, would charging the whole $4,000 against the plan’s assets meet a fiduciary’s responsibility to act “for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying [no more than] reasonable expenses of administering the plan”?

I see that often it’s not easy to distinguish which work is beyond what’s needed to tax-qualify and administer the plan. And in many situations the whole expense is so small that a fiduciary might put little or even no effort in trying to sort out or estimate a portion that’s not for administering the plan. But I think it’s wise for a fiduciary to be mindful of the general principle.