Department of Labor Field Assistance Bulletin (FAB) 2003-3
Allocating Plan Expenses to Participants
Rev. 06/05/03, E-mail Alert 2003-10

On May 19th the Employee Benefits Security Administration (EBSA) issued Field Assistance Bulletin 2003-3 to provide guidance to its field investigators on the permitted methods of allocation of expenses among participants in a defined contribution retirement plan. FAB 2003-3 specifically supersedes the position on the allocation of expenses for QDRO determinations originally expressed in DOL Advisory Opinion 94-32A

The guidance indicates that plan sponsors and fiduciaries have considerable discretion under ERISA to determine, as a matter of plan provision or administrative policy, how expenses will be allocated among participants and beneficiaries. The FAB concludes that a method of allocating expenses as set forth in a plan document, effectively becomes a part of the benefit entitlements under the plan and fiduciaries generally will be required to follow those provisions.

If plan documents are silent or ambiguous on the subject, plan fiduciaries must act prudently and solely in the interests of participants in determining how to allocate expenses. These general principles apply to methods of allocating expenses among participants in the plan as a whole and of allocating specific expenses to individual participants, rather than the plan as a whole.

The FAB focuses upon the allocation of expenses among participants and does not provide a list of permitted expenses that may be charged to a plan. In so doing, the FAB clarifies several issues about allocating expenses among participants. The FAB addresses expenses that may be allocated to a particular individual versus expenses that may be allocated among all participants. It further details expensing among all participants based on a pro rata versus per capita method.

FAB 2003-3 expenses that may be charged solely to a particular individual’s account include:

• QDRO and QMSCO Determinations
  

Expenses from determination as to whether a domestic relations order is a Qualified Domestic Relations Order (QDRO). This is a reversal of the DOL’s opinion expressed in Advisory Opinion 94-32A. In addition, expenses in determining a Qualified Medical Child Support Order (QMCSOs) Determinations may be so charged.

• Administrative expenses attendant to hardship distributions.
  
  
• Calculation of benefits payable under different distribution options e.g. joint and survivor annuity, lump sum, single life annuity, etc.)
  
  
• Reasonable expenses for administering the plan may be charged to vested separated participants. This may be accomplished without regard to whether the accounts of active participants are charged such expenses and without regard to whether vested separated participants are afforded the option to withdraw the funds or rollover the funds.
  
  • Caution: IRS 1.411(a)-11(c)(2)(i) indicates that a consent on a distribution over $5,000: “Consent is not valid if a significant detriment is imposed under the plan on any participant who does not consent to a distribution.” Thus, if the IRS considers the charge to maintain the account to be a “significant detriment imposed under the plan,” then the IRS may disallow the charge despite the DOL’s permission to so charge.
    
    
• Benefit distributions may be charged to the participant to whom the distribution is made. This may be done for those receiving periodic distributions and may include check-writing expenses. The ruling does not address lump-sum payments, but presumably they are eligible for similar treatment.
  

FAB 2003-3 Expenses Among All Participants
A pro rata allocation, i.e. allocations made based on the assets in the individual account, would be a permissible equitable method of allocating expenses among participants.

However, a per capita allocation, i.e. expenses charged equally to each account, regardless of the individual’s assets, may be used for allocating certain fixed administrative expenses of the plan, such as:

• recordkeeping
  
• legal
  
• auditing
  
• annual reporting
  
• claims processing
  
• similar administrative expenses

Fees based on account balances, such as investment management fees, should be charged on a pro rata basis because a per capita charge appears to be arbitrary under FAB 2003-3 guidelines.

Services that provide investment advice to individual participants may be charged on either a pro rata or per capita basis regardless of the actual utilization by particular participants.

Click here for Field Assistance Bulletin 2003-3.