How to Pay for Expenses Using Plan Assets

The process of innovation is never-ending. This is true whether you’re talking about science and technology or business and finance. In terms of your financial plan, there are new features available to help you prepare for certain expenses. However, you must be careful to ensure that plan sponsors are still abiding by the rules set by the ERISA, regarding using plan assets to pay for expenses. That said, how can someone make an eligible payment toward expenses, using these new plan services?

Determine what’s payable and what’s not

The basic rule is that fiduciary function and service expenses relating to administration can be paid using plan assets. This would intuitively mean that expenses, like discretionary amendments such as adding loans, deferral behavior studies and the like, as well as education-related services for plan participants cannot be paid using plan assets. These are all commonly called the settlor activities. Services not directly related to the plan cannot be paid using the plan’s assets.

Know the steps

Now, as a plan sponsor, if you are planning on using plan assets to pay for an expense, several steps must be carefully taken:

1.     First, confirm that you have the documents pertaining to the payment of the expenses using the plan assets, on  hand. Permits must be verified, regardless if the desired payment is eligible or not.

2. Next, carefully review which services are provided in the plan. This is in correlation with the determination of what’s payable or what’s not. You should review the vendor’s total service package, including the free services, just to double-check.

3.    Itemize the services for a further breakdown of the list. A comprehensive list may show you the eligibility to make this type of payment.

4.    After you have reviewed the eligibility, confirm the fee on related, payable services.

5.     Once confirmed, you may now ask the plan trustee to pay the service provider upfront.

6.    After the payment, you may now allocate or distribute the fee to involved participants on a per-capita basis.
7.    Then, write a documentation of the whole process to improve legitimacy and avoid question.

New rules can be a lot to take in, especially when we have become accustomed to using the comfortable, old ways. However, it’s important that we innovate and stay up-to-date on how we can use these new rules for our participants’ benefit.

Having a hard time with your expenses? Contact us for a comprehensive guide for your financial wellness. We’re here to help!