DOL Field Assistance Bulletin Addresses Use of Plan Assets for Apprenticeship and Training Program Expenses | Practical Law

DOL Field Assistance Bulletin Addresses Use of Plan Assets for Apprenticeship and Training Program Expenses | Practical Law

In a field assistance bulletin, the Department of Labor (DOL) addressed when the use of Employee Retirement Income Security Act of 1974 (ERISA) plan assets to pay for marketing and graduation ceremonies for training and apprenticeship programs may be permissible. To promote compliance with these standards, the DOL recommends that plans establish internal controls designed to prevent inappropriate, excessive or abusive expenditure of plan assets.

DOL Field Assistance Bulletin Addresses Use of Plan Assets for Apprenticeship and Training Program Expenses

by PLC Employee Benefits & Executive Compensation
Published on 03 Apr 2012 • USA (National/Federal)
In a field assistance bulletin, the Department of Labor (DOL) addressed when the use of Employee Retirement Income Security Act of 1974 (ERISA) plan assets to pay for marketing and graduation ceremonies for training and apprenticeship programs may be permissible. To promote compliance with these standards, the DOL recommends that plans establish internal controls designed to prevent inappropriate, excessive or abusive expenditure of plan assets.
On April 2, 2012, the DOL issued Field Assistance Bulletin (FAB) 2012-01, which clarifies that the use of ERISA plan assets to pay for marketing and graduation ceremonies for training and apprenticeship programs may be permissible where expenses are modest and limited to the ceremony or marketing program itself.
FAB 2012-01 notes that under Title I of ERISA, not all employment-based job training and apprenticeship programs are ERISA plans, including:
  • Scholarship programs paid from an employer's general assets.
  • Training provided on the job using an employer's general assets.
However, those apprenticeship and training plans that are subject to ERISA must satisfy ERISA's general fiduciary requirements (see Practice Note, ERISA Fiduciary Duties: Overview), including limitations on the use of the plan assets of an apprenticeship or training plan. Recent investigations by regional DOL offices have raised questions regarding payments from plan assets:
  • For meals, gifts, entertainment or other expenses associated with graduation ceremonies.
  • To market, advertise or promote the apprenticeship or training program.
FAB 2012-01 intends to promote consistency in enforcement by regional offices and states that graduation and marketing expenses:
  • Are not automatically impermissible under ERISA.
  • May promote legitimate plan objectives.
Specifically, a plan's payment of expenses for a modest graduation ceremony would be acceptable if the expenses were:
  • Modest in relation to the plan's assets.
  • Approved in accordance with controls, including internal accounting and recordkeeping rules, designed to prevent inappropriate, excessive or abusive use of plan assets.
  • For the cost of the ceremony itself.
For example, a graduation ceremony offering light refreshments with diplomas or certificates for apprentices and small gifts for non-apprentice plan instructors would be permitted. In contrast, according to FAB 2012-01, the following expenses would not satisfy the DOL's test:
  • A graduation dinner for all attendees.
  • Valet parking.
  • Travel or hotel accommodations for graduating apprentices or guests.
Similarly, expenses for program outreach must be solely for marketing or promotion of the training program, and the amount of the expense must be consistent with the fiduciaries' duty of prudent and economical use of plan assets. For example, T-shirts for apprentices bearing the program's logo may be acceptable, while tickets to sporting events generally would be unreasonable. Donations of plan assets to favored charities are always impermissible, according to the DOL.
In FAB 2012-01, the DOL also notes that IRS rules regarding tax exempt entities do not replace ERISA's fiduciary requirements for ERISA-covered plans. The fact that a non-ERISA, tax-exempt educational institution may pay for certain graduation or marketing expenses does not, by itself, justify the same expense for a plan fiduciary.

Practical Implications

FAB 2012-01 suggests that the use by apprenticeship and training plans of ERISA plan assets for graduation ceremonies and program marketing may be an enforcement priority for DOL regional investigators going forward. The bulletin should assist employers in determining which types of program-related expenses are consistent with ERISA fiduciary obligations. In particular, abuses may result from:
  • Lack of oversight of plan vehicles, equipment and inventory.
  • Unreasonable instructor salaries and bonuses.
  • Excessive employee meal stipends that are not reasonably related to a plan's training program.
The bulletin suggests that, to help avoid violations, plans should establish internal accounting, recordkeeping and administrative controls designed to prevent inappropriate, excessive or abusive expenditure of plan assets. This includes written expense policies. The DOL has published a list of internal controls that apprenticeship and training programs may find useful.