ERISA budget accounts are useful tools for managing retirement plan expenses, but they come with advantages and risks and therefore require careful monitoring by plan sponsors and record keepers, benefits attorneys told Bloomberg BNA.
The accounts set up under the Employee Retirement Income Security Act aren't new, but the Department of Labor's fee disclosure final regulations under 29 C.F.R. § 2550.408b-2(b) contributed to a sudden interest in them, Rhonda Migdail, of counsel with Keightley & Ashner LLP in Washington, said June 12.
“I think there was an ‘ah-ha' moment when DOL came out with the fee disclosure regulations, and people began to focus more on what these things actually were,” said Migdail, formerly a manager in the Internal Revenue Service's Employee Plans division.
An ERISA account is a plan-level account that holds excess revenue-sharing payments collected by the plan record keeper. The payments can either be used for plan expenses or be allocated back to the plan participants.
Revenue-sharing payments result from annual marketing or distribution fees on a mutual fund (also called Rule 12b-1 fees), subtransfer agent fees, provider compensation, shareholder or administrative services fees or similar payments.
The fee disclosure rules (RIN 1210-AB08), which were released in February 2012, require certain service providers of ERISA-covered defined benefit and defined contribution plans to provide plan fiduciaries sufficient information to assess the reasonableness of compensation that service providers would receive under contract, to identify potential conflicts of interest and to satisfy reporting and disclosure requirements under Title I of ERISA.
Two Types of Accounts
ERISA accounts can either be held inside the plan by the plan sponsor or outside the plan by the record keeper.
The two types of ERISA accounts can roughly be analogized to checking accounts and debit cards, Bruce L. Ashton, a partner in Drinker Biddle & Reath LLP's employee benefits and executive compensation practice group and based in Los Angeles, said June 5.
Under the “checking account” model, the money is put back into the plan trust, and therefore is an unallocated account in the plan, so the funds are “clearly plan assets,” Ashton said.
“The plan fiduciary, trustee, administrator, whoever it is, can direct that a check be written on that account to pay certain appropriate expenses,” he said.
Under the “debit card” model, the funds are typically made available for the plan record keeper to be used to pay plan expenses at the direction of the plan fiduciary, Ashton said.
ERISA accounts—whether held inside or outside the plan—are much more common among small and midsize sponsors, because large sponsors often are able to eliminate revenue sharing during negotiations, Ashton said.
Excerpted from a story that ran in Pension & Benefits Daily (06/12/2014).
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