Lockton Offers Thoughts on Plan Design and Fees

In “Permissible Plan Expenses and Those That Fall on the Wrong Side of the Fence”, Jessica Skinner, JD, compliance attorney, for Lockton Retirement Services, explains the intricacies between determining what fees should be paid by the plan and which should be paid for by the employer.   

In “401(k) Plan Design Solutions for Firms With High Turnover or Disparate Compensation Levels,” Travis Dutton, producer, for Lockton Retirement Services, explains how using plan design can create not only a opportunity to provide your salaried employees with benefits, but how to use the design to remove the “retirement gap” from the highly compensated (HCEs) and key employees.  

“The Employee Retirement Income Security Act (ERISA) requires the plan fiduciary to evaluate all fees paid by the plan to ensure those expenses are related to a necessary fiduciary function,” Skinner says. The kicker is, many expenses incurred by a plan are not related to a fiduciary function, but are instead settlor in nature and are not permissible plan expenses. Expenses that fall outside of the fiduciary bucket must be paid for directly by the employer and may not come out, derive or originate from plan assets. The failure to pay an expense from the proper source can result in significant penalties and costs for a plan sponsor.”   

Skinner’s article continues to explain the difference between settlor functions and fiduciary functions and a simple two question survey to assess your “side of the fence.”   

In “401(k) Plan Design Solutions for Firms With High Turnover or Disparate Compensation Levels,” Dutton says: “Take for instance, a 1,000-employee firm. The firm has 50 HCEs, 350 salaried and administrative employees and 600 hourly, high-turnover employees. The firm could implement a 401(k) plan for just the salaried and administrative group and deem the 50 HCEs ineligible by a discrete class definition. This permits the option of excluding the hourly class from the 401(k), assuming a reasonable business classification, which Lockton can assist in clarifying. Thus, a firm could implement a 401(k) plan for only its salaried and administrative employees. In turn, the HCE group and the hourly group could be excluded from benefiting from the 401(k) plan.”  

Dutton’s article explains that certain industries with low participation rates of hourly and transitional employees prevent HCEs and key employees from contributing more than 40% to 50% of the current maximum of $16,500. Proper plan design can eliminate this problem while still rewarding long-term employees.