Construction Employee Relations and Benefits
Timely articles covering the most pressing issues facing construction firms in the Midwest

DOL Clarifies Permissible Plan Expenses
By:Gregory L. Ash

One of the most often discussed topics among employee benefits practitioners recently has been the Department of Labor's heightened scrutiny of the payment of expenses out of plan assets. The DOL's enforcement efforts on this issue were concentrated in the Agency's Kansas City regional office, causing area employers even greater concern. In an effort to clarify its position and assuage some of these concerns, the DOL issued in January an Opinion Letter and press release outlining its interpretation of the rules governing the payment of plan expenses.

The DOL's guidance reaffirms the Agency's position that expenses related to "settlor" functions are not reasonable expenses of a plan, and therefore are not appropriate expenses for a plan to pay. Such "settlor" functions include decisions relating to the establishment, design, and termination of a plan. Except in the context of multiemployer plans, such functions generally are not fiduciary activities subject to Title I of ERISA.

The recent Opinion Letter clarifies, but does not supersede, a 1997 Opinion Letter on the same subject. In its 1997 guidance, the DOL expressed its position that a plan's tax-qualified status confers benefits for both the plan sponsor and the plan. Thus, some of the expenses incurred by a plan that is intended to be tax-qualified could reasonably be paid out of plan assets, as long as the plan's terms permit such payments. The DOL believes that practitioners have misconstrued the 1997 Opinion Letter, however, as requiring the apportionment of all tax qualification-related expenses between the plan and plan sponsor. In Opinion Letter 2001-01A, the DOL rejects that interpretation.

Opinion Letter 2001-01A makes clear that the formation of a tax-qualified plan is a settlor activity for which the plan may not pay expenses. The DOL noted, however, that the implementation of such a settlor decision may involve activities relating to maintaining the plan's qualified status, for which expenses may be paid by the plan. Such "implementation activities" may include drafting plan amendments required by changes in the law, nondiscrimination testing, and requesting IRS determination letters. Expenses incurred in analyzing options for amending the plan, however, would be settlor expenses which may not be paid from plan assets. The DOL has promulgated six hypothetical fact patterns to illustrate its position.