My understanding of whether document preparation (prototype) fees are a settlor function or not regards whether the plan is already drafted or not. An initial drafting is a settlor function, subsequent amendments are restatements are not. Can someone please confirm or correct me if I'm wrong? I have a client who will restate into an EGTRRA prototype soon, and they pay the TPA's fees from the plan assets. The TPA will do the prototype. I just want to make sure the TPA doesn't need to bill the plan sponsor vs the plan itself for the cost to update the prototype for the EGTRRA restatement. Thank you for any help.

Will there be any re-design of the plan incident to the EGTRRA restatement? If so, you'll need to carve the fees for re-design out of the total restatement cost, and treat the carved out fees as settlor function expenses, not payable by the plan. Otherwise, the costs are to keep the plan updated so that it continues to be tax advantaged. Those costs may be paid by the plan.

In addition to using J Simmons’ good suggestions, you might consider whether a TPA’s fee really is a fee for writing the document or something else.

With some recordkeepers, a fee might be for a bundle of services that includes some service concerning a plan document. The portion of an undifferentiated fee that’s attributable to the document service might be immaterial or even insignificant in relation to the whole fee.

Even with a recordkeeper that has a separate fee for a document service, some are careful to say the fee is not for writing the document, but rather for recording customer instructions based on the adoption-agreement choices or other plan terms.

Some in-house lawyers (I was among them) have advised descriptions of this kind to support an argument that the recordkeeper’s involvement concerning a document was not to give legal advice or practice law, but rather naturally part of the recordkeeper’s self-defense against its own liability or in some other way a legitimate part of the recordkeeper’s internal business needs. Even in States that sometimes show a hidebound outlook on the unauthorized practice of law, a recognized defense is that one prepared a document because, even if one isn’t a party to it, the document significantly affected the preparer’s rights, duties, or obligations.

If the recordkeeper has so described its service, the plan fiduciary’s lawyer might have some room for an interpretation that the recordkeeper’s fee, especially if it’s low enough that it couldn’t have involved advice, was meaningfully for plan administration rather than plan creation.

There is another reason for checking that a TPA’s “documents” fee is modest enough that it couldn’t include legal advice. In most States, it’s a crime for a non-lawyer to give legal advice (or draw a document that by implication includes legal advice). {I remind BenefitsLink readers of my longstanding view that the law ought to permit any person to give legal advice, and to be responsible for that advice.} Although that crime might seem to be the actor’s problem, ERISA’s prudence duty [ERISA § 404(a)] and reasonable-service-contract exemption [ERISA § 408(b)(2); 29 C.F.R. § 2550.408b-2] make this the plan fiduciary’s concern. A purported “contract” for a service that’s unlawful for the service provider to perform can’t be prudent, and likely can’t be a “reasonable contract”.

In order for the plan to maintain its tax-qualified status, the IRS requires the document restatement. Why would that restatement fee be considered a settlor function, and not just a normal ongoing required plan expense to maintain the plan?

It wouldn't be a settlor function. See JSimmons post.

thank you all for your help, greatly appreciated