ERISA Expense Account - Allocation to Participants

I am having trouble finding an actual regulation or part of the DOL/IRC that references exactly how often ERISA expense account excesses should be allocated to participants. Can anyone help me with this? Is there an actual law/regulation, or is it just a good practice? Everything I have found is related to forfeitures, but does not reference ERISA accounts.

If you don't mind elaborating for me - What would you be using this account for? How is it funded?

The account is established for excess revenue from the plan to be deposited into, for the plan to use to pay expenses. Usually plan administration expenses, auditor fees, FA compensation, is paid out of this account. They are also known as ERISA recapture accounts, revenue-sharing accounts, ERISA expense accounts, and plan revenue accounts.

For instance, there might be 50 bps built in to fund expenses for advisor comp as 12b-1 fees ("commissions"), but the advisor works on a fee basis and takes 35 bps.  50 goes in, 35 goes out, and 15 stays behind.

It can be used to pay plan expenses or it can be allocated to participants.  I don't have a cite for that (and was always curious about the term "ERISA account" and variations; I think someone decided that gave it an aura of goodness or something, not that there's anything wrong with such accounts).

Right. My question is around whether there is actually a DOL/IRS requirement that it be allocated annually, or if it is just a best practice. Really wondering if a client that hasn't done this for a couple years would have to go through EPCRS or some other correction method, or if they could just allocate the excess expense account amount to active participants as of the prior year end and call it good. 

As far as I know, ERISA does not prohibit revenue sharing or specify how allocations should be made, so it really comes down to whether or not the plan sponsor (or committee) has a prudent process in place around these decisions.

A review of Advisory Opinion 2013-03A may be a good place to start; however, in the footnotes, the DOL specifically states that the "letter does not address any fiduciary issues that may arise from the allocation of revenue sharing among plan expenses or individual participant accounts or where the employer has the obligation to pay plan expenses.

Sorry, didn't notice the "often" in "how often" in your original post.  I don't know but at least one of the recordkeepers we use makes it sound like there is a requirement and insists that it be done by Jan 15 of the following year.  When asked what happens if it's not done by then, they're not sure.

I have never run across chapter & verse on this, but I will echo that my clients are encouraged to reallocate any excess annually.  If that hasn't been done in a few years I would pay out any expenses that are due (or about to be due) & run an allocation.  I can't imagine needing to file on it, but again I haven't been in this exact scenario  

Depends on whether they are plan assets. (2013-03A referenced above).   If they are, many reference Rev. Rul. 80-155 for the notion that you can't have unallocated plan assets at the end of the plan year in a DC plan for the plan to remain qualified.  See the Spring 2010 edition of the IRS retirement plan news where they talk about this with regard to forfeitures.  Here is something good.  Look at slide 11...

First things first....read the plan document.  Some prototype and preapproved documents have language pertaining to ERISA accounts.  If the document is silent regarding these types of accounts, look through the definitions for the definition of earnings.  The rev share could fall into that definition and then they would be required to be allocated as earnings.  If the document is completely silent, then the allocation becomes fiduciary discretion.  Most would use prorata allocation. 

If these assets are not allocated in accordance with the plan document, then you would be cited for at least 404(a)(1)(D), failure to follow plan documents.  The way that DOL looks at these types of accounts, which they definitely do, is that they should be allocated in accordance with the plan document, or alternatively, at fiduciary discretion by the end of each plan year.  Plans cannot have "slush funds" or accounts that accumulate for the use of plan expenses year after year.  They view this as a benefit to the employer, since the employer may have to pay the expenses that are not funded.  (Be sure to check the plan document for restrictions on the payment of expenses as well)

49 minutes ago, Michelle said:

First things first....read the plan document.  Some prototype and preapproved documents have language pertaining to ERISA accounts.  If the document is silent regarding these types of accounts, look through the definitions for the definition of earnings.  The rev share could fall into that definition and then they would be required to be allocated as earnings.  If the document is completely silent, then the allocation becomes fiduciary discretion.  Most would use prorata allocation. 

If these assets are not allocated in accordance with the plan document, then you would be cited for at least 404(a)(1)(D), failure to follow plan documents.  The way that DOL looks at these types of accounts, which they definitely do, is that they should be allocated in accordance with the plan document, or alternatively, at fiduciary discretion by the end of each plan year.  Plans cannot have "slush funds" or accounts that accumulate for the use of plan expenses year after year.  They view this as a benefit to the employer, since the employer may have to pay the expenses that are not funded.  (Be sure to check the plan document for restrictions on the payment of expenses as well)

You may have to do some digging (or key word searching ) to find it.  In my document, it is located in the section that details the authority and responsibility of the Plan Administrator.

Quote

...shall have total and complete discretionary power and authority:

(3) to determine the amount and manner of any allocations and/or benefit accruals hereunder, including whether the Plan maintains an ERISA account and the manner in which amounts deposited in such ERISA account shall be allocated.