Need to be vigilant on keeping those 401(k) deferrals

With a new administration in the White House, tax legislation will certainly be on the plate. As we know with the last tax bill, great tax deductions and subsidies could be on the chopping block to pay for tax cuts. We say that the cap on state and local taxation deductions at $10,000, was the stick to get tax cuts.

401(k) deferrals cost the Federal government about $185-200 billion in lost revenue. Critics claim this tax deferral is a boon to the wealthy. So expect a few in Congress who will want to eliminate this benefit or require all contributions to be made on a Roth, after-tax basis. Regardless, we need to be vigilant in preserving this benefit, which preserves us as plan providers in this industry.

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I’m not concerned with the DOL and CIA agreements

Rep. Virginia Foxx (R-N.C.) asked for an investigation into the Department of Labor’s (DOL) apparent practice of sharing information obtained from its investigations with plaintiffs involved in ERISA-related litigation. These agreements are known as common interest agreements (CIA).

This CIA thing came up during litigation where information that a plaintiff got from the DOL was ruled not to be privileged and was forwarded to the defense since the DOL didn’t sue the defendants. Apparently, many ERISA litigators have heard of these CIA deals, but they haven’t procured information from them.

The job of the DOL is to investigate and prosecute in defense of participant rights. If they investigate plan fiduciaries, they have no obligation to remain silent and could provide that information to anyone they want.

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Do what’s right for the client

As many of you know, a substantive part of my income is independent fiduciary work. Whether it’s an ERISA §3(16) administrator, trustee, or Pooled Plan Provider (PPP), my other business Austin 3(16) Fiduciary Limited, is almost as successful in income as the law practice.

There are times when Third Party Administration (TPA) firms ask me to serve as a PPP, and I raise the issue of whether they can do it independently. I’m turning down the business of getting basis point income in favor of doing what’s right by the TPA. Drafting a PPP agreement for them doesn’t net the income as being a PPP, but it’s what’s right for the client. If they’re already doing 3(16) work, being a PPP is a no-brainer. Sure, it’s taking food out of my mouth, but it’s done right by the client.

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Employees will screw up, be honest in fixing it

“A lot of holes in the desert, and a lot of problems are buried in those holes. But you gotta do it right. I mean, you gotta have the hole already dug before you show up with a package in the trunk. Otherwise, you’re talking about a half-hour to forty-five minutes worth of digging. And who knows who’s gonna come along in that time? Pretty soon, you gotta dig a few more holes.” Nicky Santoro (Joe Pesci) in Casino.

I worked for Third Party Administration (TPA) firms and employees would screw up. Sometimes, the bosses were transparent and sometimes they just wanted to bury that problem.

As someone who loves transparency and tries to practice it all the time, you need to be open and honest with clients about when things gets screwed up, and how you will fix it. You can’t just find a hole and bury problems, because the fear that the hole will be found, is just too great. Customer service is most important and not being open and honest with the customer isn’t a great service. No matter the issues, most clients are reasonable. Your reputation is everything and being honest in fixing errors your company caused, actually helps it.

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Great selling, but be right

There are a lot of people in the retirement plan business that are great at selling. I always said that Rich Laurita was the greatest salesman I knew. My. The joke was that Rich couldn’t spell 401(k). But Rich was smart enough to know that, so he’d bring in the actuary or me to meetings when needed. A lot of salespeople don’t have that gift of self-awareness like Rich did. They’ll promise a plan sponsor a solution for saving money for retirement, but their lack of knowledge of how plans work gets in the way.

I’ve had to fix too many mistakes of salespeople, who sold solutions that don’t work. That could be a cash balance/safe harbor 401(k) solution and not asking if a plan sponsor has a SIMPLE plan or not asking about affiliated employers.

To be a good salesperson is to know what you’re good at and what you’re not. If you don’t know the rules regarding retirement plans, there are plenty of people out there, like me, who can provide the answer.

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With some penalties, there is nothing I can do

Memorial Sloan Kettering is probably one of the top 5 cancer hospitals in the United States. If I ever got cancer, I’d be there as a patient instead of some rinky dink local hospital (my mother would take us to the nearest doctor, no matter how bad they might be). I had a friend who beat back deadly cancer twice because she was on top of things. A co-worker who waited too long told him they could do nothing for him and he passed.

I’m proficient in eliminating penalties from the Internal Revenue Service (IRS) and the Department of Labor (DOL) for the late 5500s. These penalties can be crushing, especially from the DOL. Some penalties from the DOL can be in the six figures. I’ve had them waived because the plan sponsor filed their Form 5500. A Third Party Administration (TPA) client referred me to one of their clients and I can’t remove this penalty because the 5500 still hasn’t been filed because they haven’t gotten their act together with their auditor. You can only eliminate penalties for those who have complied (even if late). If they haven’t complied with filing the 5500, there is nothing you can do. There are so many ways to get a penalty waived, but when a plan sponsor can’t get a Form 5500 filed within two years, I have nothing for them.

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Shut up and say Thank You

My maternal grandmother Rozalia was the sweetest person I ever knew. When I would get a gift from her, she would simply say: “shut up and say thank you.” That was her way of saying that she didn’t want to hear any protest over a gift she gave.

When I worked at a law firm as a clerk when I was getting my LLM in Boston, we had a client who was a restaurant selling soups and salads. Every Wednesday, they gave us free bagels. They weren’t New York quality or even Boston Finagle Bagel quality, but they were free and they were OK. Yet, we had secretaries who complained every week about the bagels and I think you can’t complain about free food.

So if you’re allowed to speak at a retirement plan-related event and they’re not forcing you to contribute a fee, shut up and say thank you. Anytime you’re allowed to present, it’s an opportunity to build your practice. There’s no point in making any demands on what you speak on or how much, it’s a time to show some gratitude for the opportunity. From experience, free speaking engagements are few and far between.

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That last button on your 401(k) plan

As an attorney, I hate dressing up. If I could wear a sports jersey to meetings, I would. One thing I hate is buttoning up the dress shirt. There always seems to be one button unbuttoned or one done incorrectly, and it looks like a mess.

As a 401(k) plan sponsor, you need to make sure you button everything in your plan and the problem is that most forget that last button, That last button is making sure that your participants get the investment education they need to make informed, investment decisions on their own.

You have to make sure your financial advisor gives participants the tools they need to make smart investment decisions. Otherwise, your plan might be unbuttoned.

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Change is inevitable

The local baseball card show promoter sold its two biggest shows to a memorabilia dealer who took over a show in Boston. As I told my son, change is inevitable—for the show, for the vendors, and for the people who work the autograph stand. With any merger or purchase, change is inevitable.

I said the same thing when I worked for a third-party administrator, where the bosses sold to someone who wanted to band all these registered employees. Investment advisory firms and go public. I said then, that change was inevitable, and one employee overheard me and ratted me out. What I said was innocuous and accurate. I didn’t say we all would get fired, it’s that any transaction in the business will result in change. Sometimes good, sometimes not so good. The boss accused me of hurting morale, but I was never at a place with worse morale. The point here is that. If a plan provider firm you know is being bought out, change is inevitable. A lot of the times, the change isn’t good. Time will tell, anyway.

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LTPT and Automatic Enrollment will cause a lot of errors

I am all for an increase in retirement plan coverage. The problem is the errors that go with it. The long-term, part-time rule for deferral participation in 401(k) plan, is a great idea. So is automatic enrollment for new plans mandatory?

The only problem is that so many plan sponsors and providers aren’t ready for this, and errors will be plentiful. You can take that to the bank.

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