Some retirement plan expenses can be paid for with plan assets — but many can’t. Which are the “reasonable and necessary” retirement plan expenses that can be paid out of plan assets?
Generally, services required to maintain the plan’s compliance and administration can be paid from plan assets. Obvious examples include the annual nondiscrimination testing and preparation of the annual Form 5500. Another example is a plan amendment or restatement that is required because of a legislative change.
Optional services generally cannot be paid out of plan assets. One clear example is costs for projections that are optional and benefit the company, not the plan participants. Some service fees may not be easy to classify. Fees for resolving plan corrections — such as delinquent deferral remittances or contributions determined with a definition of compensation not supported in your plan document. In the event of an incorrect test result, regardless of who was at fault, the law ultimately holds the plan sponsor responsible for the proper maintenance of the plan. As a result, the plan sponsor cannot shift the financial burden for the corrections to the plan.
All in all, it’s perfectly acceptable and common to charge reasonable and necessary transaction-based and recordkeeper administrative fees to participants. However, it is critical to ensure that similarly situated participants are treated the same. It would be discriminatory and, therefore not allowed, for non-highly compensated employees to pay administrative fees while highly compensated employees did not.
If you are unsure whether a specific fee can be paid from plan assets, please contact us.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
Find a Location
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA / SIPC. Some insurance products are offered through LPL or its licensed affiliates. Associated Bank, N.A. (“AB”) and Associated Financial Group, LLC (“AFG”) are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using AFG, and may also be employees of AB. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, AB or AFG.
The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, CA, FL, IL, IN, KS, MA, MI, MN, MO, NC, ND, OH, TN, TX, WA and WI
Insurance products are offered by licensed agents of AFG. AFG is a wholly-owned subsidiary of AB. AB is a wholly-owned subsidiary of Associated Banc-Corp (“AB-C”). AB-C and its subsidiaries do not provide tax, legal, or accounting advice. Please consult with your tax, legal, or accounting advisors regarding your individual situation.