Plan assets can pay for certain plan amendments, according to an advisory opinion issued by the Department of Labor. Specifically, the DOL clarified that plan assets can be used to pay for drafting and implementing plan amendments required by changes in the tax law.
The issue of paying plan expenses with plan assets has long been a murky area because the Employee Retirement Income Security Act is not entirely clear on the subject. ERISA says that a plan’s assets do not exist as a benefit to the employer but rather for the sole purpose of providing benefits to participants and beneficiaries and defraying reasonable costs associated with administrating the plan. Any decision to use plan assets to pay plan costs is considered a fiduciary act and is governed by the fiduciary responsibility provisions of ERISA.
So, what does “reasonable” mean? That’s been left up to the DOL. In its advisory opinion, the DOL has determined that some plan costs related to maintaining tax-qualified status can be paid with plan assets. These include:
That said, there is a subtlety that must be understood. Under this advisory opinion, plan assets can pay for the act of amending your plan. Plan assets, however, cannot defray the costs leading up to the act of amending.
For example, plan assets cannot be used to pay for an analysis of your amendment options, only for the actual drafting and implementation of the changes.