# What Is an ERISA Budget Account? Source: https://planprovider.pro/blog/what-is-an-erisa-budget-account > Learn what an ERISA budget account is, how it uses revenue sharing, what expenses it can pay, and key compliance considerations for plan sponsors. April 3, 2026 An ERISA budget account can help a retirement plan capture and track revenue sharing and use it to pay appropriate plan expenses. Here’s how these accounts work, what you can pay from them, and the compliance pitfalls to avoid. Many plan sponsors hear terms like “ERISA budget account,” “expense recapture,” or “revenue credit” from a recordkeeper and assume it’s a standard feature of every 401(k). It isn’t. But when it *is* available and set up correctly, an ERISA budget account can be a practical way to manage plan expenses, improve fee transparency, and reduce the amount the company pays out of pocket. Below is a plain-English guide to what an ERISA budget account is, how recordkeepers typically administer it, what you can pay from it, and what happens if the dollars aren’t used. ## What is an ERISA budget account? An **ERISA budget account** is an account (usually a bookkeeping “bucket” on the recordkeeper’s platform) used to **collect and track certain plan-related credits**—most commonly **mutual fund revenue sharing**—and then apply those dollars to **eligible plan expenses**. Think of it as a controlled way to: - **Capture revenue sharing** generated by certain mutual funds in the plan, - **Segregate it for plan use** (rather than letting it silently reduce a provider invoice without a clear trail), and - **Spend it on appropriate plan expenses** in a documented, ERISA-friendly manner. These accounts are often described as “plan assets” (because the dollars originate from the plan’s investments). That means they should be handled with the same care as other plan assets—used for the exclusive benefit of participants and to pay reasonable plan expenses. ## How recordkeepers use ERISA budget accounts (and where the money comes from) Most ERISA budget accounts are funded by **mutual fund revenue sharing**. Revenue sharing is compensation paid from a mutual fund’s expense ratio to service providers (commonly recordkeepers) for administrative services. In practice, a recordkeeper may: - Track revenue sharing amounts generated by the plan’s mutual funds, - Credit those amounts to an ERISA budget account on a periodic basis (monthly/quarterly), and - Apply the balance toward eligible plan expenses, such as recordkeeping fees or other approved plan costs. **Why sponsors like it:** If your plan’s investments generate revenue sharing, an ERISA budget account can help ensure those dollars are visible and intentionally used—potentially reducing employer-paid expenses or reducing participant-borne costs (depending on how your plan is designed and what’s permitted). **Important caution: “Net of fees” returns can be misleading.** Some lineups include revenue-sharing share classes that may show competitive “net” performance, but that can mask the true cost participants are paying. Two key risks: - **Higher expense ratios can quietly reduce participant returns.** Even if the plan later uses revenue sharing to offset an invoice, participants already experienced the drag of the higher fund expense. - **Cross-subsidization.** Participants invested in revenue-sharing funds may effectively subsidize plan costs for participants invested in lower-cost or non-revenue-sharing funds—unless the plan has a deliberate allocation method. This is one reason many fiduciaries prefer clean pricing (no revenue sharing) plus an explicit fee, or they use an ERISA budget account with a clear methodology for how credits are allocated and expenses are paid. For more context on fiduciary oversight and selecting the right help, see [how to hire a retirement plan advisor](/blog/hire-retirement-plan-advisor) and our directory of [401(k) financial advisors](/plan-advisors/401k). ## What expenses can you pay from an ERISA budget account? As a general rule, ERISA budget account dollars can be used for **reasonable plan expenses**. What’s “reasonable” depends on the facts, your service agreements, and what your plan document allows. Common examples that may be payable (when properly documented and permitted) include: - **Recordkeeping and administration fees** - **Third-party administrator (TPA) fees** (compliance testing, allocations, loan/admin processing) - **Investment advisory/consulting fees** (if structured appropriately and permitted) - **ERISA counsel** for plan-related legal work (not employer “settlor” work like plan design decisions) - **Audit fees** for the plan’s annual ERISA audit (when required) - **Form 5500 preparation support** and related compliance services If your plan needs an audit, start with [what a 401(k) audit is and when you need one](/blog/what-is-401k-audit) and [what is needed for a 401(k) audit and where to find it](/blog/what-is-needed-for-401k-audit). You can also browse qualified firms in our [401(k) auditors directory](/auditors/401k) (or [view all auditors](/auditors) for other plan types). **Expenses that typically should NOT be paid from plan assets:** employer business expenses unrelated to plan administration, or “settlor” expenses (e.g., decisions about whether to start/terminate a plan, plan design changes primarily benefiting the employer). When in doubt, consult an [ERISA attorney](/erisa-attorneys). ## What happens at the end of the year if the account isn’t used? There isn’t one universal rule—this is a key point. What happens depends on the **recordkeeper’s procedures**, your **service agreement**, and what your **plan document** permits. Common end-of-year (or periodic) outcomes include: - **Carry forward:** The balance stays in the ERISA budget account and rolls into the next period to pay future eligible expenses. - **Fee offset:** The recordkeeper applies the balance to upcoming invoices until it is used. - **Reallocation back to participants:** Some arrangements allow (or require) the balance to be allocated back to participant accounts using a stated method (e.g., pro rata by assets, or based on who generated the revenue sharing). If your plan has a large and growing balance, that can become a fiduciary red flag. Fiduciaries should be able to explain **why the balance exists**, **how it will be used**, and **why the approach is prudent**. ## Not all recordkeepers (or plan documents) allow ERISA budget accounts ERISA budget accounts are common, but not universal. Limitations usually fall into three categories: - **Recordkeeper platform limitations:** Some providers simply don’t administer a separate budget account or don’t support the preferred allocation methodology. - **Share class / investment lineup structure:** If the plan uses institutional or “clean” share classes with no revenue sharing, there may be little or nothing to credit. - **Plan document constraints:** Some plan documents (or administrative policies) may limit how revenue credits can be used, how expenses can be paid from plan assets, or how forfeitures/credits are allocated. Before relying on an ERISA budget account, confirm: - How revenue sharing is calculated and credited (timing and source), - Which expenses are eligible and what approval process is required, - Whether unused balances carry forward or must be allocated, and - How the arrangement is disclosed to participants and reflected in fee reporting. ## Compliance and fiduciary considerations (what to document) Because these dollars are tied to plan investments and fees, the best practice is to keep strong documentation. Consider maintaining: - A written description of the ERISA budget account policy (what goes in, what comes out, approval steps) - Quarterly or annual statements showing credits and uses - Invoices and proof of payment for expenses paid from the account - A rationale for the allocation method if amounts are returned to participants Fee and expense decisions also connect to your annual reporting obligations. If you want a refresher, see [what a Form 5500 is](/blog/what-is-form-5500) and [penalties for late or rejected Form 5500 audits](/blog/cost-and-penalties-for-late-or-rejected-form-5500-audits). For regulatory background, the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) provides guidance on fiduciary responsibilities under ERISA at [Meeting Your Fiduciary Responsibilities](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities). You can also review the DOL’s overview of [retirement plan fees and expenses](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/understanding-retirement-plan-fees-and-expenses). ## Conclusion: Use ERISA budget accounts to increase transparency—carefully An ERISA budget account can be a helpful tool to capture revenue sharing, improve fee visibility, and pay appropriate plan expenses—potentially reducing employer out-of-pocket costs or supporting a more equitable fee structure. But it’s not “free money,” and it shouldn’t be managed casually. The investment share classes you choose, the allocation method you use, and what your plan document allows all matter. If you’re evaluating whether your plan should use an ERISA budget account—or whether your current arrangement is creating unintended cross-subsidies—consider working with a qualified [401(k) financial advisor](/plan-advisors/401k) and, when needed, an [ERISA attorney](/erisa-attorneys). If your plan is subject to an annual audit, our [401(k) auditors directory](/auditors/401k) can help you find firms experienced with these fee and expense structures. And if you’re reviewing broader compliance items, don’t overlook related requirements like an ERISA bond—see [what an ERISA bond is and how to buy one](/blog/what-is-erisa-bond) and browse [ERISA bond providers](/erisa-bonds). [← Back to all posts](https://planprovider.pro/blog)