(b)lines Ask the Experts – What Is a Settlor Expense?

“However, the recordkeeper indicated that the expense could not be reimbursed from plan assets since it is a “settlor” expense. I have never heard of that term before; what in the world is a settlor expense?” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:   

Interesting question, since there is indeed a difference between settlor expenses, which may NOT be paid from retirement plan assets, and other plan expenses which may indeed be paid from plan assets.

Settlor expenses are defined as expenses which confer a benefit on the plan sponsor, as opposed to plan participants. Settlor expenses generally relate to decisions regarding the amendment, establishment or termination of a plan. A clear example of this would be the expense of a plan design study for which the goal would be to modify the employer contribution formula to reduce the contribution expense of the plan sponsor. Since the employer would clearly benefit from the reduced contribution cost, the expense of this study is a settlor expense that could NOT be paid from plan assets.

However, the difference between settler and other plan expenses is not always as clear as it is in the Experts’ example above. That is why the Department of Labor (DOL) has published guidance to assist plan sponsor in determining the difference between settlor and non-settlor plan expenses. The guidance takes the form of a series of fact patterns that provide examples of the type of expenses that may and may not be paid from plan assets.

Thank you for your question!

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.