“Can the ERISA Budget Account be used to pay for financial wellness education for participants?”

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Georgia is representative of a common inquiry involving the use of an ERISA Budget Account.

Highlights of Discussion

More than likely, yes.  However, be sure to check the plan document language and record keeping service agreement for specific language that addresses the use of the ERISA Budget. Also, it is important to make sure the financial wellness education is effectively available to all participants.

The DOL defines an ERISA Budget Account (or free recapture account) in Q&A 13 FAQs About the Schedule C Form 5500. In many cases, the ERISA recapture account (excess revenue) 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 defraying reasonable expenses of administering the plan. Therefore, the ERISA fee recapture account may only be used to pay for plan administrative expenses that relate to the day-to-day operation of the plan (e.g., calculating benefits, communicating plan information to participants, plan testing, etc.). The plan sponsor cannot use it to pay for its obligations to the plan (e.g., contributions).

In Advisory Opinion 2001-01A , the DOL 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 vs. plan expense. The plan could not use the ERISA budget to pay for settlor functions such as decisions relating to the establishment, design and termination of plans.

The DOL’s plan sponsor booklet, Understanding Retirement Plan Fees and Expenses, indicates that the DOL considers the cost of participant education as an administrative fee, eligible for payment by the plan.

It is important to check the plan document language regarding payment of plan fees, as often times specific guidelines are stated therein.

Also check the plan’s recordkeeping service agreement for any language regarding the use of revenue sharing payments.

Conclusion

DOL considers the cost of participant education as an administrative fee, eligible for payment by the plan and, potentially, the ERISA Budget for the plan if one exists. However, it is important to check the plan document and record keeping service agreement for specific language that addresses the use of the ERISA Budget. Also, make sure the education is effectively available to all participants.