Improper use of the ERISA Budget Account associated with an employer sponsored 401k plan, even if merely a mistake, is a fiduciary failure which can lead to investigations, penalties, and criminal charges brought by the Employee Benefits Security Administration (EBSA). Read on for a refresh on the proper use of the ERISA Budget Account.
Funding Employer Contributions?
Use of the ERISA Budget Account of a company sponsored 401k plan to make employer contributions is a hard no. Sometimes referred to as the ERISA Fee Recapture Account or ERISA Account within the company’s 401(k) plan, this account’s assets “can only be used to pay plan administrative expenses,” as attorney Jenny Kiffmeyer further explains:
The DOL defines an ERISA Budget Account in Q&A 13 of its Supplemental FAQs about the Schedule C for Form 5500. Plan recordkeepers may receive revenue sharing payments from fund companies in the form of shareholder servicing fees. In some cases, the plan sponsor and the recordkeeper may agree to establish an ERISA Budget Account to hold amounts where the revenue sharing exceeds the fee level negotiated between the recordkeeper and the plan sponsor.…The ERISA Budget Account (excess revenue sharing) in a 401(k) plan is viewed as a plan asset that belongs to the participants (Advisory Opinion 2013-03A). ERISA Sec. 403(c)(1) requires plan assets be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries, and for defraying reasonable expenses of administering the plan.
Appropriate use of the ERISA Budget Account?
Essentially, only plan administrative expenses “that relate to the day-to-day operation of the plan” may be paid using the ERISA Budget Account. Examples of allowable expenses include: calculating benefits, communicating plan information to participants and plan testing, Because a plan sponsor cannot use the ERISA Account to “pay for its obligations,” payment of employer contributions is not permitted. The National Association of Retirement Plan Advisors offers this additional guidance:
In Advisory Opinion 2001-01A, the DOL has clarified what is considered plan administrative expenses (payable by plan assets) vs. “settlor” expenses, which must be paid by the plan sponsor. The DOL also has described fact patterns regarding the differentiation between Settlor v. Plan Expenses. The plan could not use the ERISA Budget to pay for settlor functions, such as decisions relating to the establishment, design or termination of plans. Additionally, it is important to check the plan document language regarding payment of plan fees as often the plan will include specific guidelines. Also, check the plan’s recordkeeping service agreement for any language regarding the use of revenue sharing payments.
Important To Know
The Department of Labor’s Employee Benefits Administration (EBSA) regularly pursues violations of ERISA, recovering funds for retirement plan participants. Civil corrections, litigation and criminal indictments are all possibilities for plan fiduciaries under the high standards of ERISA. Included in the examples the Department of Labor provides related to pension plan violations is “Using plan assets to benefit certain related parties to the plan, including the plan administrator, the plan sponsor, and parties related to these individuals….”
The DOL offers a variety of Compliance Assistance resources, including periodic webinars, to help plan fiduciaries avoid problems. For example, Meeting Your Fiduciary Responsibilities “provides an overview of the basic fiduciary responsibilities applicable to retirement plans under the law.”
Even fairly routine plan sponsor mistakes are known to open the doors for broader investigation.For example, compliance failures related to the ERISA fidelity bonds required by the Department of Labor to protect the retirement plan against acts of fraud or dishonesty are triggers for audits and other regulatory action. It is important for all plan fiduciaries, including plan sponsors, to keep their ERISA Bonds up to date. As a leading national ERISA Bond provider, listed with the Department of the Treasury, Colonial Surety makes it easy and speedy for plan sponsors to ensure compliance. Uniquely, Colonial includes retroactive ERISA fidelity bond coverage for years when the plan was not adequately covered. Additionally, plan sponsors can opt for comprehensive, multi-year coverage packages, ensuring the ERISA bond remains Department of Labor compliant for the life of its term. Conveniently, plan sponsors can secure affordable packages that contain the ERISA bond, plus fiduciary and cyber liability insurance. Update your protection today:
It’s also important for plan sponsors–and everyone with a role in the management of the retirement plan–to know that neither diligent effort, nor the ERISA fidelity bonds required by the Department of Labor (DOL), provide protection in the face of lawsuits: only Fiduciary Liability Insurance does.
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