What Expenses Can An ERISA Plan Pay?

That is the topic of this interesting article in Reish Luftman's ERISA Audit Report.

Here's a sample:

[L]et’s examine generally whether an expense can be paid from plan assets. The
first step is to verify whether the plan - by its written terms - permits the payment of expenses from plan assets. A typical plan expense provision will permit “all reasonable administrative expenses” to be paid from the plan. The quoted language raises the second point in the analysis. That is, is the expense reasonable? If the answer to either one of these questions is no, the plan cannot pay the expense. If, however, the plan document permits the payment of expenses from plan assets and the expense is reasonable, the analysis is still not complete.

The next step in the analysis involves how to categorize the expense. DOL guidance on the subject divides expenses into two types. The first is “settlor expenses,” which must be borne by the employer. In general, settlor expenses include the cost of any services provided to establish, terminate or design the plan. The second category is administrative expenses, which - if they are reasonable under all the relevant facts and circumstances - may be paid from the plan. Administrative expenses include fees and costs associated with (i) amending the plan to keep it in compliance with tax laws, (ii) nondiscrimination testing, (iii) obtaining an IRS determination letter ruling and (iv) providing plan information to participants.

Read more about this complex area of ERISA law at the jump link above.

PS