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Groom Law: Breaking Down Eligible Plan Expenses

 

Group Law Group

Groom Law: Breaking Down Eligible Plan Expenses. Do you know which expenses are eligible to be paid from the assets of your retirement plan under the Employee Retirement Income Security Act (ERISA) of 1974 and the Internal Revenue Code (IRC) of 1986? If you answered no, you’re probably not alone. Figuring out which expenses you can and cannot pay from your plan can be complex and confusing.

Groom Law Group recently put together a useful chart for plan sponsors that details the expenses that can be paid from employee benefit plan assets, and those that can’t. In addition to showing the following:

  • the types of services for which expenses were incurred,
  • examples of expenses,
  • whether they are or are not legally permitted under ERISA or IRC, and
  • where sponsors can find legal justification for the expense being paid or not being paid,

the Groom chart has three blank sections where sponsors can:

  • keep notes on whether or not the expenses are chargeable under your plan terms,
  • if the amount being paid is prudent and reasonable, and
  • keep track of who provided the service.

Broadly, basic administrative expenses can largely be paid from employee benefit plan assets, including those for plan recordkeeping and accounting, safekeeping of plan assets (i.e., custodial services), compliance auditing, legally required reporting (like your Form 5500), participant communications, and third party administrator (TPA) expenses (including start-up and ongoing fees).

Additionally, sponsors are generally permitted to pay other administrative expenses out of plan assets, including items such as educational seminars, retirement planning software, investment advice, online transactions, and daily valuations.

Investment-related service expenses are also payable out of plan assets, such as management fees, contract termination charges, sales charges (i.e., loads and commissions), and asset liability monitoring services used to determine asset allocations that are aligned with the plan’s investment objectives.

It also details those costs that are not payable with plan assets — primarily expenses related to lawsuits and breaches of fiduciary duty.

Again, the Groom Law Group chart linked above shows a complete breakdown of expenses payable from your plan’s assets — and those that aren’t. You can also check with your plan advisor, review your plan documents, and consult the legal references listed in the Groom chart for more specific information. While it can be confusing — and it certainly isn’t the sexiest topic — it is important to recognize the parameters set forth under ERISA and IRC so you know which expenses you can pay from your plan assets and which you can’t.

Robyn Kurdek

Robyn Kurdek

Freelance writer with nearly 2 decades of financial industry experience, with niche expertise in the defined contribution (DC) industry. I also have defined benefit (DB) plan knowledge. I write all types of content for retirement plan participants, sponsors and advisors, including web copy, newsletters, white papers, fact sheets, blog posts, financial wellness articles, and more. "I speak DC."
Robyn Kurdek
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