As the concept of ERISA budget accounts (aka, Revenue Credit Accounts, ERISA expense accounts, etc.) continues to evolve, there are a number of issues plan sponsors need to consider, especially in light of the dearth of relevant authority.
In the most-common of these accounts, the plan’s record keeper agrees to provide credits to a suspense account (separate from the forfeiture account) relating to certain revenue sharing payments it receives. Plan fiduciaries can direct the service provider to apply the funds to a variety of uses, which may include reimbursing the plan sponsor for fees and expenses associated with services provided to the Plan, paying vendors, and/or allocating the funds to participant accounts.
While the possible issues are endless, the top issues for plan sponsors (who will not use the funds to pay themselves) to consider include the following:
- Plan fiduciaries must determine that the consideration being paid to the record keeper, net of the ERISA budget account, is reasonable. They should keep in mind that if a record keeper is offering a new ERISA budget account, it could signal an internal belief that existing fees are too high. Here, less is always better, but not necessarily good.
- Plan fiduciaries should understand the formula, methodology, and assumptions under which ERISA budget accounts will be calculated. They should also be able to confirm that the right amounts are being credited, and periodically do so.
- To the extent the plan sponsor will use the ERISA budget account to pay for expenses that otherwise would have been born by Plan participants or will allocate funds to participants in the form of additional contributions, it should be careful to invest the funds in a prudent manner, as it could face enhanced risk of participant claims that had the funds been invested prudently, the Plan would have benefited by having greater net assets. (From a practical standpoint, if the ERISA budget account is used to pay for expenses that otherwise would have been paid by the plan sponsor, this concern is significantly reduced).
- Depending on how the funds will be used, plan sponsor and/or fiduciaries should adopt a written policy setting forth how such funds will be used.
- If the plan sponsor will use the ERISA budget to pay for Plan expenses, it will need to assure that ERISA allows the payment (as a plan administrative rather than settlor expense), as well as coordinate how it will use the funds in this account with funds in the participant forfeiture account (if any), in part to ensure that there are no unallocated amounts in the suspense account at the end of the plan year.
- There should be a designated individual to ensure that any use of the funds is permitted by the plan document and to the extent plan expenses are paid, they are reasonable.