ERISA PLAN ADVISOR

How would you like to pay for that?

How Are You Paying for Your Financial Wellness Program?

Are you creating an ERISA prohibited transaction?

Workplace financial wellness programs are in high demand by both employers and employees.  There is good reason they are in high in demand; there is a great need.  If you need convincing of the need or the demand, then please refer to the research that PWC has been doing for 10 years.  The most recent information can be found at https://www.pwc.com/us/en/services/consulting/workforce-of-the-future/library/employee-financial-wellness-survey.html

The need is real, there is no question about that.

The question for you to consider is,

Are you creating an ERISA prohibited transaction based on how you are paying for your financial wellness program?

If you are using plan assets to pay for services which benefit employees not participating in the retirement plan, you may very well be at risk.

The easiest and way to solve this issue and to avoid it completely is for the employer to pay for a financial wellness program via a direct invoice.  Simply write a check to pay for your recordkeeping services, ERISA advisor, or third-party financial wellness vendor.  Pay for your third party services this way instead of using plan assets via a plan expense reimbursement account, often referred to as an “ERISA budget,” account.   To be clear, paying for it this way is permissible assuming it is documented properly under ERISA section 408(b)2.  But by doing so, you are using ERISA plan assets to pay for services. This requires a prudent process and prudent decision making to determine that these services and the cost are in the best interest of the plan participants.  By simply paying for the services via a direct, billable invoice; by NOT using plan assets, the risk of a prohibited transaction is just about eliminated.

Here’s a scenario for you to consider.  An employer has a $25 M plan and pays the recordkeeper via an invoice for recordkeeping services.  But, the ERISA advisor is paid from plan assets in the amount of 15 basis points annually.  As part of the service agreement between the plan sponsor and the ERISA advisor, the advisor provides financial education and financial wellness consulting to all employees regardless of whether they are eligible for the plan or if they are active participants in the plan.

Is this arrangement allowable and is it suitable? Perhaps, but it certainly could be questioned.

There could be more than one method by which the plan pays the advisor. One possibility would be a fee deducted from participants accounts in the amount of 0.15% annually to cover the 15 bps.  This means that an employee with a $250,000 account balance would be paying an annual fee of $375 for the advisor’s services and an employee with a zero balance pays nothing.  Is this right?  Is this fair?  Should this be allowed?  It’s an age-old quandary.  Now that financial wellness programs are so closely tied to the ERISA plan offering, employers need to be careful about how services are being paid for.

Probably the best questions for an employer to start with are:

  • Instead of using plan assets to pay for services, can we pay via a direct bill?
  • If paying from plan assets:
    • Do we fully understand how these services are being paid for?
    • Do we understand our options?
    • Do we understand if this is falls under a prohibited transaction?
    • How are we documenting this decision?

Use the above list of questions as a checklist at your next committee meeting.  If you are not already paying for your financial wellness program via a direct invoice, make efforts to move in that direction!!