In a recent advisory opinion, the DOL has addressed - for perhaps the first time in published guidance - a key issue related to "ERISA accounts" established by service providers for 401(k) and other defined contribution retirement plans.
Background. Service providers to defined contribution retirement plans often receive revenue sharing payments with respect to the plan's investments. As part of their service agreements, these service providers may agree to give a portion of those revenue sharing payments back to the plan in the form of an "ERISA account" or "ERISA budget account." Amounts credited to the ERISA account are often used by the plan or plan sponsor to pay expenses associated with plan administration, such as auditing fees and plan communication costs.
The structure of the ERISA account varies from agreement to agreement. Some ERISA accounts are held on the service provider's books. Some ERISA accounts are held as a separate account within the plan's trust arrangement. In either case, there has been some question as to whether or when amounts credited to the ERISA account are treated as "plan assets" for purposes of ERISA.
Plan Assets When Plan Actually Receives Them. The recent advisory opinion describes an arrangement in which the ERISA account is held on the service provider's books as part of its general assets until it is directed by a plan fiduciary to deposit those amounts into a plan account. On those facts, the opinion concluded that the amounts credited to the ERISA account likely did not become plan assets "before the plan actually receives them." For plans with similar arrangements, this will alleviate some concern that, for example, they might be violating the ERISA trust requirement by allowing the ERISA account to remain on the service provider's books. If the amounts credited to the ERISA account are not plan assets while they are held by the service provider then they are not subject to the trust requirement.
Broader Fiduciary Considerations. Although the core conclusion of the advisory opinion was favorable for plans and their service providers, the opinion included quite a bit of cautionary language about other potential fiduciary issues associated with service provider arrangements. The decision to engage a service provider - and the terms on which the service provider is engaged - are often fiduciary decisions that must be evaluated in light of the various fiduciary obligations under ERISA (e.g., reasonableness and exclusive benefit). Service arrangements also will often raise prohibited transaction considerations that must be carefully navigated to ensure that one or more exemptions applies.