In most cases, an Employer who sponsors a retirement plan may choose whether to pay a plan-related expense directly (as a tax-deductible business expense of the Employer) or to direct the plan to pay the expense (in which case it could be paid from accumulated forfeitures or allocated and deducted from the participants' accounts).  This decision may be made on an item-by-item basis, if desired. 

Plan assets may be used to pay reasonable expenses of administering and maintaining the plan.  Most plan-related expenses are allowable to be paid from the plan assets; e.g. investment management and advisory, administration and actuarial, withdrawal/distribution processing, loan initiation, recordkeeping, reporting, disclosure, accounting/auditing, legal, PBGC premiums, plan document amendments related to required law changes, valuation/appraisal of plan assets, evaluating QDROs, employee education and communication, premiums for fiduciary liability protection (if insurer has recourse to fiduciaries), premiums for fidelity bond coverage, implementing a plan termination, etc. 

However, there are some plan-related expenses which should NOT be paid from plan assets; rather, they should be paid only by the Employer.  These so-called "settlor" expenses are deemed to be expenses related solely to the Employer's role as the creator (or settlor) of the plan/trust and, as such, must be paid by the Employer.

Examples of "settlor" expenses include:

·         fees for determining the plan design, benefit formula changes, or plan termination

·         fees for amending the plan document for discretionary changes not otherwise required by law (but see below regarding an alternative position to be taken)

·         fees related to the Employer's financial accounting (e.g. determination of FASB 87, 88, 106, 112 liabilities pertaining to the Employer's financial statements)

It's important to note that there may be a judgment decision to make in distinguishing between a settlor expense and a plan expense.  For example, the expense of determining whether to terminate a plan is a settlor expense, while the expense of implementing the plan termination is a plan expense.  Likewise, with respect to the costs of amending a plan document, the Department of Labor (DOL) has indicated that if the amendment is required due to a law change, then it is a plan expense; but, if the amendment is due to a discretionary decision by the Employer, then it is a settlor expense.  However, there is a reasonable position that the cost of amending a plan document for discretionary design changes may be partially paid from plan assets, taking into account the relative benefits inuring to the participants as a result of the amendment.  (DOL Advisory Opinion 97-03A (as clarified by DOL Advisory Opinion 2001-01A))

In conclusion, an Employer generally has flexibility to decide whether to pay a plan-related expense directly or by the plan, subject to the few exceptions for "settlor" expenses listed above.  If there are accumulated forfeitures in the plan, it may be desirable to use them to pay plan-related expenses.  Or, if an Employer wants its employees to share some of the costs of operating the plan, it may be desirable to allocate them among the participants' accounts (subject to possible limitations imposed by the recordkeeping platform); particularly, fees for withdrawal payments, loans, and QDROs.  On the other hand, if an Employer wants to maximize both its tax deductions and the accumulation of retirement plan assets for all participants, it may be more desirable for the Employer to directly pay the plan-related expenses.