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DOL Guidance for Paying 401(k) Fees from Plan Assets Blog Feature
Eric Droblyen

By: Eric Droblyen on April 4th, 2018

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DOL Guidance for Paying 401(k) Fees from Plan Assets

DOL Fiduciary Rule | 401k fee disclosure

One of the most common questions I get from 401(k) plan sponsors is “What 401(k) fees can I pay from plan assets?” This confusion is hardly surprising when you consider the broad range of 401(k) fees a plan can incur.

However, if you’re a 401(k) sponsor, you have little choice but to know what 401(k) fees can be paid by your plan due to your fiduciary responsibility to pay only “necessary” fees from plan assets. Otherwise, you risk paying fees that improperly reduce participant returns and trigger fiduciary liability.

The good news is that it’s easy to stay out of trouble. The Department of Labor (DOL) divides 401(k) fees into two categories – administrative expenses that are payable from plan assets, and settlor expenses that are not. Before you pay a 401(k) fee from plan assets, you just need to confirm it fits the proper category. Here’s a guide to what you need to know.


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Administrative vs. settlor expenses

The DOL divides 401(k) fees into two categories – administrative and settlor expenses. In general, administration expenses cover plan administration and investment management. These expenses are considered by the DOL to benefit 401(k) plan participants exclusively. Settlor expenses, on the other hand, are considered to benefit the 401(k) plan sponsor in more than an incidental way. Common settlor expenses include consulting fees for professional guidance during the plan formation, design or termination process.

Because any expense paid by a 401(k) plan reduces participant investment returns, the DOL only wants expenses that benefit participants to be paid from plan assets. For this reason, settlor fees must be paid by the plan sponsor. However, there are a few twists to this rule. When 401(k) plan participants are considered to derive some benefit from a settlor expense, the sponsor can charge that portion to the plan. Further, plan expenses necessary to implement a settlor decision can be paid from plan assets as an administrative expense.

For examples of common 401(k) plan administrative and settlor expenses, see the chart below:

Plan Stage

Activity

Administrative Expense

Settlor Expense

Plan Formation

Plan setup – including participant account establishment and systems (trust, recordkeeping, billing) setup

x

 

Plan design consulting

 

x

Controlled group consulting

 

x

Provider search

 

x

Plan Management

Annual plan administration - including asset custody, participant recordkeeping, and ERISA compliance (Form 5500 preparation, nondiscrimination testing, participant disclosure)

x

 

Investment advice - including fund menu selection and professional portfolio management

x

 

Plan amendments (discretionary)

 

x

Plan amendments (legally-required)

x

 

Participant distributions

x

 

Participant loans

 x

 

QDRO splits

x

 

Enrollment meetings or participant education materials

x

 

Statement mailings

x

 

Investment fund adds, drops, replacements

x

 

Plan audit by independent CPA

x

 

Independent appraisal of hard-to-value assets or employer stock

x

 

Fidelity bond

x

 

Correction of plan qualification failures under the IRS' EPCRS program (SCP, VCP or Audit CAP) - including consulting fees, legal fees, and IRS penalties

 

x

Correction of late Form 5500 filings under the DOL’s DFVC Program - including consulting fees, legal fees, and DOL penalties

 

x

Correction of late deferrals and other fiduciary violations under the DOL’s VFC Program - including consulting fees, legal fees, and DOL penalties

 

x

Plan Termination

Legal and consulting expenses - e.g., drafting the resolution to terminate the plan

 

x

401(k) provider contract termination fees

x

 

Investment surrender charges

x

 

Unsure of a 401(k) fee? Pay it from a corporate account

As a 401(k) plan sponsor, you have a fiduciary responsibility to only pay 401(k) fees from plan assets that are both “reasonable” and “necessary.” While it can be difficult to evaluate 401(k) fees for reasonableness, it’s rarely difficult to evaluate their necessity thanks to DOL guidance on the subject.

However, not all 401(k) fees will fit cleanly into the administrative or settlor category. When this is the case, the safe course is not paying these fees from plan assets – and instead pay them from a corporate account.


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About Eric Droblyen

Eric Droblyen began his career as an ERISA compliance specialist with Charles Schwab in the mid-1990s. His keen grasp on 401k plan administration and compliance matters has made Eric a sought after speaker. He has delivered presentations at a number of events, including the American Society of Pension Professionals and Actuaries (ASPPA) Annual Conference. As President and CEO of Employee Fiduciary, Eric is responsible for all aspects of the company’s operations and service delivery.

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