Solving The Mystery Of What A TPA Does

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

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Keep politics to yourself

Someone I really respect in the industry posted on Twitter that her husband’s certified financial planner (CFP) told him that people who wear masks in this COVID pandemic as her husband was wearing a mask. The CFP just lost a client.

Regardless of your politics, keep it to yourself. Don’t make political jokes. Keep politics out of your LinkedIn posts. It’s so hard getting clients, why lose one over politics?

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Sometimes, you have to be a Scrooge to keep things correct

I’m very opinionated, you know that. My opinions are just opinions, based on my experiences for 22 years as an ERISA attorney. Mainly, they are still based on my near 10 years as an attorney working for third party administrators (TPAs).

When you’re an ERISA attorney for a TPA rather than just one who has only been in private practice, you understand that certain plan provisions cause more errors than others. I’m a strong proponent of limiting loans to one outstanding at a time because I’ve seen TPAs make mistakes on paying off and accounting for multiple loans. There are other provisions I like and don’t like and it’s all about minimizing the potential for plan mistakes. Sometimes, you have to be a Scrooge to facilitate the ease of plan administration. I’m sure other people in the industry have different opinions, but when your job as an ERISA attorney for a long time was putting out administrative fires, you trying to avoid starting new ones.

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Critics aren’t necessarily haters

There have been some critical op-eds of late, criticizing 401(k) plans. Some of the criticism wasn’t warranted as the writer seemed to get things wrong on cost.

I don’t really pay attention to criticism, whether it’s warranted or not. For someone misinformed about how 401(k) plans cost or how the industry acts, I don’t get too agitated and call a critic, a hater. The reason is that no matter how misinformed an opinion might be, I’m a little sensitive as I’ve been called a hater a few times in my life, just by offering constructive criticism. It’s usually outside 401(k) plans, but I have a problem with just labeling anyone a hater even if they completely missed the boat with their opinion.

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I don’t get riled up about 401(k) opinions

Many years ago, I was one of the people on LinkedIn (along with James Holland) that would point out the issues regarding 401(k) plans that needed to be addressed: the need of fee disclosure and the problems with revenue sharing. Industry leaders didn’t take too kindly to the criticism and I think history has vindicated us.

These days, there are always writers with little knowledge of 401(k) plans, that takes potshots at the industry. I just don’t get riled up because opinions are opinions, even if they’re based on missing facts. The 401(k) industry can always be better and we should never lose the demand that it gets better. Like with folks on Facebook, I just don’t get riled up about any 401(k) industry criticism, whether its warranted or not. Maybe I’m getting older, but the industry has improved itself over the last 10 years and it’s the criticism back then, that helped it.

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Last call for safe harbor match soon for 2021

Unlike the safe harbor non-elective contribution, you still need notice and you still need one in place if you want one for 2021 by December 1.

While non-elective safe harbor formulas no longer need notice and no longer need to be in place until during or even after the plan years are over, the changes made by the SECURE Act are not applicable for safe harbor matching contributions. The reason why is safe harbor match is tied to deferrals and participants should have a right to decide if and how much they are willing to defer, to benefit from the safe harbor match.

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Last call for safe harbor match soon for 2021

Unlike the safe harbor non-elective contribution, you still need notice and you still need one in place if you want one for 2021 by December 1.

While non-elective safe harbor formulas no longer need notice and no longer need to be in place until during or even after the plan years are over, the changes made by the SECURE Act are not applicable for safe harbor matching contributions. The reason why is safe harbor match is tied to deferrals and participants should have a right to decide if and how much they are willing to defer, to benefit from the safe harbor match.

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Nestle sued over 401(k) plan

Nestle is the latest target of ERISA litigators and is being sued 0ver excessive administrative fees.

The Nestle Plan has more than 39,000 participants and approximately $4.2 billion in assets.

The complaint in the suit alleges that the plan’s expenses equal to $60 a head, about double what should be charged for a plan of that size. The lawsuit also attacks the use of managed accounts, but the complaint cites a lack of actual knowledge on specifics concerning the plan’s decision-making process.

We will see how it plays out.

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Insperity, Reliance Trust settle for $39.8 million in PEO settlement

Insperity and Reliance Trust has settled a lawsuit for $39.8 million, alleging that they breached their fiduciary duties and committed prohibited transactions under the Employee Retirement Income Security Act (ERISA) relating to the management, operation, and administration of the Insperity 401(k) plan.

Insperity, a professional employer organization (PEO), offers a 401(k) plan to employees of small and medium-sized businesses. Insperity retained Reliance Trust as a discretionary trustee to hold, manage, and control the assets of the plan and to be responsible for selecting, retaining, and monitoring investment options available to participants.

The plaintiffs alleged that the defendants selected untested proprietary funds as investment options for the plan and retained those funds despite their poor performance, which benefited defendants at the expense of participants. It was alleged that because Insperity Retirement Services, a subsidiary of Insperity, served as the plan’s recordkeeper, there was a prohibited transaction where excess fees were paid.

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The Politics of ESG Investing

At the heart of everything in the 401(k) plan business, politics does play a part.

Environmental, social, and governance (ESG) funds are all the talk of the business because of a proposal set forth by the President Trump led Department of Labor (DOL).

The DOL has proposed a rule that would limit the ability of retirement plans to include investment funds or strategies that integrate ESG factors into their investment process.

The DOL talks about the need for picking funds on performance, rather than ESG principles. Plan providers and plan sponsors are calling foul, but as the Joker in The Dark Knight said: “why so serious?”

If Trump is re-elected and the proposal becomes a final rule, the change is negligible. ESG funds are hard to find in defined-contribution plan lineups. Only about 4.5% of plans had at least one sustainable fund, and they made up, on average, 0.17% of a plan’s offerings. Why the outrage? It’s just politics on one side or the other.

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