PEP might get pepped with possible retirement plan change

The Ways and Means Committee approved proposals for portions of the reconciliation bill, among them a plan to strengthen retirement savings, which might be a boost for pooled employer plans (PEPs).

The proposal would require employers that don’t currently offer employer-sponsored retirement plans to automatically enroll their employees in individual retirement accounts such as an IRA or other plans similar to a 401(k). 

Any type of forced IRA program mandates for employers that don’t offer retirement plans will likely act as a boost for PEPs because many employers would rather join one, than being forced into a program run by the government.

Posted in Retirement Plans | Leave a comment

Our finest hour

People will say that I often have a negative spin, regarding the retirement plan industry. I don’t. know if that’s necessarily true, I just think that my views are just unfiltered.

I will say that based on this COVID pandemic and the resiliency of the retirement plan industry, I will say that to steal a line from Winston Churchill, this was our finest hour. With so many employees working from home and so many plan sponsors either in financial distress or seeking CARES distributions for their participants. Regardless of the issues, I believe that the industry as a whole, stood up to a challenge no one could foresee. 20 years earlier, with so few able to access computers from home, the industry probably would have failed to the challenge.

Thankfully, technology and the industry pulled us through. We are not out of the woods yet, but we did avoid what could have been a huge blow to the viability of this industry.

Posted in Retirement Plans | Leave a comment

The Rules Of 401(k) Plan Provider Engagement

My latest article for can be found here.

Posted in Retirement Plans | Leave a comment

Sometimes, it’s the luck of the draw with a government agent

I have been an ERISA attorney for 23 years, I have seen a lot of strange things that plan sponsors have done to risk the ire of the Internal Revenue Service (IRS) and the Department of Labor (DOL). Many of these strange things could have resulted in plan disqualification and the agent from the IRS or DOL let it pass while I’ve seen plan sponsors make more innocent mistakes and pay through the nose. So sometimes it’s not what you do that counts, but the type of agent you get reviewing your mistake.

In 2001, I handled an IRS audit of a client when I was working with a third-party administration (TPA) firm. The IRS agent reviewing the case notices that the owners of the company were taking out loans over the $50,000 limit. That was a major error. A bigger error was the fact that these owners were shareholders of an S corporation and before 2002, they weren’t even allowed to take out loans. This was a major error that the prior TPA never caught. The punishment, the illicit loans were treated as taxable, deemed distributions, and the company had to pay an excise tax for the value of the money loaned out to these owners. To this day, I am shocked that the agent didn’t want blood from a stone, because he was entitled to get it.

On the flip side, I had a client being audited by an IRS agent. The matching contribution was misallocated because the TPA didn’t allocate it correctly, according to the terms of the plan document they drafted. If we added all the years under review, the error was probably less than $1,000. For some reason, the agent was reviewing this thing for months and demanding that the company pay some sort of penalty. In addition, a shareholder of the company who had no salary nor ever worked for the company was not listed as a highly compensated employee. The IRS agent demanded that this owner be listed as an employee even though he was not and his listing as a highly compensated employee would have helped the client in their discrimination testing.

On the DOL end, I had a client who put in all their defined benefit plan money with a fellow by the name of Bernie Madoff. The client, for all purposes, had no investment advisor (since Bernie was busy, running other things) and no investment policy statement. The DOL agent got a promise from the client to make up all the benefits to the employees and that was that.

On the flip side, an owner of a bankrupt business who was entitled to the bulk of the assets from a defined benefit plan was being sued by the DOL because the owner’s actuary failed to produce valuation reports and distribution forms for when the owner was receiving her benefit. While she certainly breached her fiduciary duty by not watching the actuary, this happens all the time when there is a terrible TPA. Was this worth a lawsuit? Not in my mind.

Whether a plan sponsor gets their hands slapped or pay through the nose for plan errors and breaches of fiduciary duty may not depend on the offense, but the DOL or IRS agent reviewing the case. Sometimes, the plan sponsor’s fate depends on the luck of the draw.

Posted in Retirement Plans | Leave a comment

Just some of these things to juice your plan while it’s being restated

Between now and July 2022, your 401(k) plan will be going through a mandatory restatement. The restatement will create a new plan document for you and since you’re being charged for it, you might want to add, some or all of the following features to your plan since the plan document is bei8ng changed. Kill two birds off with one stone. Some of the changes to ponder:

  • Automatic-enrollment
  • Auto-escalation for salary deferrals
  • Roth in-plan conversions
  • Traditional after-tax contributions
  • Money-source and fund-specific withdrawal flexibility
  • In-service withdrawals such as hardship and age 59/12
  • Partial distributions as an addition to a lump sum (and installments if the plan allows it).

Posted in Retirement Plans | Leave a comment

Make it easy for plan participants to understand

Less is more, I believe that. As an attorney in an occupation where most attorneys charge by the hour and believe more is more, I am an outlier.

In communicating with your participants/employees, I think it’s important to offer communication in a language that they could understand. When I speak of language, I’m talking about eliminating the confusing jargon that this industry uses. All communication from you and your plan providers much be in simple, easy-to-understand terms. Unless you are in the retirement plan business,  you’re not going to have employees that understand the intricacies of retirement plans. So make sure they can understand.

Posted in Retirement Plans | Leave a comment

Plan committees have to meet

I used to joke that at the law firm I was at, that if the Managing Attorney wanted to bury a particular subject, she’d create a committee for it. Unlike a law firm committee or some organization’s fundraising committees, you have to hold these retirement plan meetings as a plan fiduciary.

Developing a process such as a retirement plan committee requires you to actually have them. Otherwise, it’s a breach of your fiduciary process and just a showing to everyone that you’re not up to it, as a plan fiduciary.

Posted in Retirement Plans | Leave a comment

Townsend joins DOL

Kathleen Kennedy Townsend joined the Department of Labor (DOL) to help advance state and federal efforts to expand retirement savings programs.

Townsend started a new role as Labor Secretary Marty Walsh’s Representative on Retirement and Pension Issues.

A former Maryland Lieutenant Governor and the oldest child of Robert Kennedy, Townsend most had served as Executive Director of Retirement for All, a grassroots advocacy foundation to create universal retirement plans for all.

Posted in Retirement Plans | Leave a comment

DOL has always dropped the ball on disclosure

The Government Accountability Office (GAO) has found that 45% of plan participants are not able to use the information given in fee disclosures to determine the cost of their investment fee, and 41% of participants incorrectly believe that they pay nothing in 401(k) plan fees.

The GAO’s view is something we could have predicted back in 2012 when the Department of Labor (DOL) didn’t offer a sample set of disclosures notices for plan participants. I understand the difficulty of the DOL to offer sample notices when there are just so many fees out there, especially on the third-party administrator side. Fee disclosures, in my opinion, should not be as long as the Torah portion for my Bar Mitzvah. In my opinion, they should be a summary of a page that describes to participants what the fees are.

Posted in Retirement Plans | Leave a comment

The Rosenbaum Law Firm Review

My latest newsletter for retirement plan providers can be found here.

Posted in Retirement Plans | Leave a comment