Dear 401(k) Plan Sponsor, These Are Things You Might Not Be Aware Of

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

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Say goodbye and get them out

When a participant of yours leaves or is let go, I think one of the most important things you can do is make sure they roll out their assets from your retirement plan.

Sure it means that you might have fewer plan assets in your plan, but I think it’s important to roll out their assets because you don’t need the headache of dealing with former employees. You have notice requirements you still have to deal with participants that are former employees. Plus don’t forget that former employees are bigger pains to deal with than current employees. So I recommend making sure they roll out their money. If they are under your minimum threshold, then cash them out if they don’t. If they are above the minimum, do your best and try to have them move the money out.

You’ll be glad for many reasons that you did.

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Watch your eligibility provision

Your plan’s eligibility provision is a big thing because it serves as a gatekeeper for which employees you want to cover based on your demographics, it’s like a velvet rope at the local club.

The problem is that sometimes your provision isn’t followed correctly or it wasn’t drafted correctly. Either way, you have a huge compliance headache. You might owe some contributions or you might have a compliance testing problem as well. Regardless, make sure that the eligibility provision meets your needs.

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Don’t let consolidation scare the life out of you

When I travel to a stadium or a game, I’m a beer snob and I will walk around to find a beer that isn’t Bud, Coors, or Miller, or even Blue Moon. I always like to use beer as an example when it comes to the retirement plan business because there is a connection there,

So when you think of the beer industry, the big did get bigger. InBev merged with Anheuser Busch and Miller merged with Coors and Molson. A company like Samuel Adams or Yuengling didn’t decide that with these large beer manufacturers (not even considering the microbreweries that these major brewers own), that they should go out of business. Small craft brewers still had a place in the marketplace. There are still customers who want quality beer even if the masters want Bud Light and Coors.

The same can be said of the retirement plan business. While a few third party administrators and plan providers are buying up the world. There is still space on the shelf for your services, it’s all going to be about how you can differentiate yourself in the marketplace.

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Introducing That HR Association

You’ve seen the logo for many of That 401(k) Conferences as a conference sponsor, but you don’t know much about That HR Association.

That HR Association is a human resource benefit corporation with the idea of providing human resource management and benefits to employers nationally. Besides a 401(k) multiple employer plan, the association will offer an automatic rollover IRA solution, a student loan management program, as well as insurance benefits for employees and other resources.

The website should be up soon and there will likely be some events nationally to introduce employers and plan providers to the association.

For more information, shoot me a line.

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Can we do better with automatic rollover IRAs? Yes.

I call myself the “most dangerous ERISA attorney in America” because I’m not afraid to express my opinion. So I’m going to say something that will irk a few people.

As the Department of Labor is concerned with missing participants and having questions about the use of automatic rollover IRAs, I have one question: are we doing enough with automatic rollover IRA accounts? Are missing participants well served with an IRA product that maybe pays 30-50 basis points in savings account interest where the interest can’t afford to pay the custodial fee? I don’t think they are and I’m sure the DOL will agree with me especially when inflation outpaces any FDIC bank interest rate.

If you agree with me, contact me shortly about a new type of automatic rollover IRA that I’ve been working on with a well known IRA custodian that will make plan providers happier and missing participants even happier (if they’re ever found).

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Having A Payroll Provider As Your 401(k) TPA Is An Awful Idea

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

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The cost of holding free events

One thing I did with That 401(k) Conference is to have a price for admission. Sure, there have been advisors who scoffed at paying a fee to attend, but I’ve been to too many free 401(k) related events.

When you don’t charge for admission, it gives incentives for those who reserved the spot any reason to cancel at the last minutes. How many times did I sponsor a 401(k) event and half the reservations cancelled?

I believe that you need those who reserve a spot at your conferences should put something down to attend your event, what I call skin in the game. Charging some sort of fee does a job of making sure that someone who has reserved will actually attend.

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You and shelf space payments

Shelf space payments where mutual funds pay a platform a fee for space on their 401(k) shelf of investments is the newest thing, especially as a way to replace the loss of revenue sharing. One provider, in particular, is under investigation for these payments.

These payments are legal for the time being, but I always err on the side of caution. If you’re an advisor using these type of funds, my belief is that you should willingly disclose the arrangement even that you’re not involved in the arrangement. I’d rather have you disclose such information, rather than your competition because it’s all about appearances and not disclosing makes it look like you’re hiding something (and you’re not since it’s not your arrangement). Just my two cents.

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The uncashed check fiasco

In the retirement plan industry, we have rules and we have guidelines on what to follow. However, there is one gray area that the Department of Labor (DOL) has absolutely no guidance: uncashed checks.

Uncashed checks are becoming a real issue, mainly because the DOL is focusing on missing participants. Not many plan sponsors balance their checkbooks, let alone the plan’s trust. Plan sponsors and their plan providers rarely make sure that distribution checks are cashed. If they’re not, what happens?

Until the DOL opines, there is no definitive answer on what to do with uncashed checks. While I prefer allowing for an automatic Roth Rollover IRA, some in the industry want to allow uncashed checks to escheat to the state. Until the DOL gives some guidance, what we should definitively do with uncashed checks will be a mystery.

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