Don’t Cheat Employees On Their Retirement Plans

As I’ve stated before, I wouldn’t hire employees because I was an employee once too. That pretty much means that I never met an employee who thought they were overpaid. For that matter, I never met an employer who thought that they pay their employees too little.

Despite what my former colleagues at union-side law firms think, employers typically don’t have a treasure chest of jewels they’re keeping away from their employees, it’s just the dynamic of a relationship where an employee wants to make as much as they can and an employer wants to pay as little as possible. It’s not evil, just human nature.

Those that never ran a business, don’t understand how costs of payroll and benefits must be tied to revenue because an employer’s pocketbook is not limitless.

Thanks to medical costs and taxes, it’s expensive to have employees. Employers are taking away benefits and not putting benefits out there that are enticing to current and prospective employees. As an employee, regardless of where I worked, the health plan got worse and worse because medical costs are spiraling out of control and the employer had to rein in costs.

While employers may feel free to cut back on the benefits they offer, the one benefit that they can’t afford to neglect is a retirement plan. An employer can certainly cut back on the contributions they make to their retirement plan(s), but they can’t just cut back on the services to their plan by sticking the plan with a cheap provider (if they are the ones paying for administration, rather than the plan) if it’s going to negatively affect the plan’s administration and compliance.

The reason is that employers as plan sponsors are plan fiduciaries too. So employers still may want to cut back on benefits, they need to make sure that they don’t do something that could negatively impact their role as plan fiduciaries.

Any change of plan provider or even a change in benefits should be done in consultation with your plan providers and/or ERISA attorney to make sure that any cutbacks in benefits you must make won’t increase your plan fiduciary liability exposure.

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Be Careful Who You Hit On The Way Up

I worked at a number of places in the 11 years before I started my own law firm practice and I will vouch that I didn’t try to hurt or attack any of my co-workers. People maybe upset with some of the stances I took in one fashion or another, but I never tried to throw a fellow employee under the bus and I never was gratuitous in any criticism I had for them. I try to treat people the way I wanted to be treated.

If you’ve read my articles over the last few years, you’ll notice that I’ve had some choice words for some former co-workers who were nasty for the sake of being nasty. If I had a supervisor who was critical, I’d accept that, but I don’t forget the people that weren’t nice because they were trying to gain some traction on their own or whatever the convoluted the reason is.

People will hold a grudge and I still hold a grudge for those that treated me in a way that I found unacceptable. So the point is that you should never knock and underling or a co-worker down because you never know where they turn up. Maybe they’ll have a blog and regurgitate your bad behavior years later.

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Tell them like it is

One of the big parts of my practice is assisting third-party administrators (TPAs) who can’t or don’t want to afford an ERISA attorney on staff.

I recently had to answer correspondence regarding the payout of a participant who was deceased and still required to take out the required minimum distribution (RMD). The beneficiaries of the deceased claim that the TPA advised them that they could take the RMD and roll it over. The only problem is that the law won’t allow them to do it.

The initial response by the TPA wasn’t wrong, it was just full of a lot of jargon that didn’t fully answer the beneficiaries’ concerns. I helped with the second response and just fully explained that no matter what they were told they could not roll over an RMD because it’s not an eligible rollover distribution.

Rather than go through a lot of words, it’s just a lot easier to tell them straight and just tell them what they can and can’t do with the deceased participant’s benefit.

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GAO says DOL has work to do on cybersecurity

The U.S. Government Accountability Office (GAO) asked the Department of Labor (DOL) to step up protections for participants in retirement plans against the growing threat of cyber theft.

In a report on the cybersecurity of the nation’s private retirement industry, the GAO recommended that the DOL clarify that plan sponsors and administrators that serve as 401(k) plan fiduciaries have a legal responsibility to protect participants’ private information and savings from online theft.

The GAO also called on the DOL to provide guidance for the retirement industry in protecting 401(k) accounts.

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Johnson & Johnson wins 401(k) lawsuit

A New Jersey Federal District Court dismissed a complaint by participants in 3 Johnson & 401(k) plans, who alleged that plan fiduciaries failed to protect their investments in company stock offered as a plan investment option.

The participants argued that Johnson & Johnson should have done something after allegations were made that talc and asbestos had been found in some company products such as baby powder. 

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Abbott wins in theft suit, for now

Abbott Laboratories beat back a 2020 lawsuit from a 401(k) participant whose account was fraudulently raided of $245,000.

The plaintiff, Heide Bartnett, also sued Alight Solutions, the plan’s recordkeeper, and that case will still go on.

An identity thief managed to get the bulk of Bartnett’s 401(k) assets transferred to a brand-new bank account, Bartnett has been able to recoup about $108,000.

Bartnett claimed that Abbott Labs breached its fiduciary duty by hiring Alight, and allegedly failing to monitor it. In the complaint, Bartnett pointed to other instances of retirement accounts at Alight being compromised, as well as an investigation by the Department of Labor.

The court (U.S. District Court for the Northern District of Illinois Eastern Division) didn’t buy that argument by noting that Abbott hired the record keeper more than a decade before news of these thefts. Court also noted that Abbott has a duty to monitor the service provider, but that duty only applies to its relationship with the plan itself, not with other plans that reported fraudulent distributions.

Although the complaint against Abbott was dismissed, the plaintiff can file an amended complaint.

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Self-Directed Brokerage Account were also up for 2020 Q4

It’s a known fact that I don’t care for self-directed brokerage accounts in 401(k) plans, but I won’t act as a censor for good news.

According to Charles Schwab with self-directed brokerage accounts (SDBAs), the average account balance across all participant accounts finished Q4 2020 at $331,664, a 13% increase year-over-year and a 10% increase from Q3 2020.

Advised SDBA accounts hold higher average account balances compared to non-advised accounts – $517,849 vs. $288,513 non-advised.

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Warning Signs that Your Retirement Plan Might Be In Trouble

My latest article for JDSupra.com can be found here.

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Retirement Plan Provider Gimmicks You Need To Be Aware Of

My latest article for JDSupra.com can be fond here.

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Advisors Advantage

My newsletter for retirement plan providers can be found here

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