Stating The Obvious On Fees

The 401k Averages Book is one of the great publications in the retirement plan business and I recommend it. I won’t recommend a report they just did because it was stating the obvious.

According to their report:  “Are All $5,000,000 401k Plans Created Equal?”, the size of a 401(k) plan’s average participant account balance will influence the amount of fees they pay.

The report states that there can be a big price difference for a $5 million 401(k) Plan if the plan has 100 participants as opposed to 500 participants.

According to their report, the total bundled cost for a plan with 100 participants and an average account balance of $50,000 is 1.25 percent as compared to 1.56 percent for a 500-participant plan with an average account balance of $10,000.

Of course it is. Most third party administrators I know charge a per head price in addition to other fees, so a plan with more participants will usually pay more than one has less even if they have the same amount of assets.

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The Trump threat to 401(k) and the reality of it

When Donald Trump was elected President last November, there were quite a few people who promised gloom and doom as if it was the end of our republic. Despite the tweets and the drama, that really hasn’t panned out yet.Many in the 401(k) plan industry have been predicating that any tax reform will jeopardize 401(k) plans. Despite denials, the rumor is that a Trump tax reform proposal will end the tax-deferred treatment of 401(k) deferrals, effecting making all salary deferrals as Roth after-tax contributions. While there are tax benefits to making Roth contributions, the fact is that many rank and file employees will stop making 401(k) contributions if they are made

Many in the 401(k) plan industry have been predicating that any tax reform will jeopardize 401(k) plans. Despite denials, the rumor is that a Trump tax reform proposal will end the tax-deferred treatment of 401(k) deferrals, effecting making all salary deferrals as Roth after-tax contributions. While there are tax benefits to making Roth contributions, the fact is that many rank and file employees will stop making 401(k) contributions if they are made post tax because time are tough to make ends meet. If rank and file employees stop contributing, then there will be a domino like effect because thanks to deferral discrimination testing, highly compensated employees may be constrained from deferring.

Even if this does make part of Trump’s tax reform proposal, don’t be so sure it will pass. Just ask everyone who though a replacement for Obama care was a fait accompli. When you factor that he 401(k) plan is the #1 retirement savings vehicle in the U.S., with more than 55 million active users contributing over $5 trillion to the plans as of March 2017, don’t be so sure that plan participants and Wall Street won’t have a say.

We have a retirement savings crisis in the United States and any proposal to curtail the tax deferral component of 401(k) deferrals will be dead on arrival in my opinion. Everyone loves the idea of tax reform and a flat tax until important tax deductions are proposed as being taken away.

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What They Don’t Know As A 401(k) Sponsor May Hurt Them

My latest article on can be found here.

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Get rid of the bad decision makers

I was a Vice President of a synagogue once and the biggest problem I had is that the people who had a greater say that I did were the same people who turned a synagogue from 750 member families to 300. They were ineffective and they didn’t understand how incompetent they were.

If your company’s retirement plan got into some trouble because the powers that be who run the plan (whether it’s the C.E.O., human resources director, or retirement plan committee) took their eye off the plan, it may be a time to replace them especially if they haven’t learned from their mistakes.

They often say that people can’t change, but I believe that people can change if they learn from their mistakes. If their arrogance doesn’t let them learn from their mistakes, then they will never change and they will consistently make the wrong choices. Sounds like most of my family.

When I was at my old law firm, the 401(k) plan was poorly run there. The Human Resources Director who was the trustee didn’t bother to hire a financial advisor, she provided no investment education to participants, and plan investments weren’t updated for 10 years. In addition, she had no idea the third party administrator (TPA) received revenue sharing payments. Based on my advice, they hired a financial advisor. It wasn’t the one I recommended, but at least they hired one. The Human Resources Director eventually without my input, hired a new TPA. Many years later after I left, someone told me that the plan owed a lot of money in corrective contributions that made no sense to me, but it was the same Human Resources Director in charge. Pat always thought she knew best and she didn’t.

A retirement plan that had major compliance issues will have them again if the powers that be that didn’t learn from their ways will make consistent poor plan provider selections like pat. It’s my opinion is that these powers that keep on making bad choices should step aside and let the people who can make the right choices take their spots. It’s hard for people with large egos to do such a thing because their egos won’t let them understand that what they have been doing all along is wrong.

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One From The Heart

The Dark Knight Rises is one of my favorite movies and one great scene at the end is when Catwoman tells Batman: “You don’t owe these people anymore. You’ve given them everything” and Batman says: “Not everything. Not yet.”

Whether it’s in my practice as an ERISA attorney, or a plan administrator, or working on this site, or working as the Vice President of a synagogue, I have given everything I have most of the time. So it’s disheartening at a time when I’ve seen people I’ve worked with who didn’t give it all. Dedication to what you do and dedication to your clients comes from the heart.

There was a plan provider once with two owners, one worked tirelessly for their clients and the other one didn’t and didn’t care when the business of providing for the client didn’t live up to the promises. The one who worked tirelessly did it from the heart and the other owner did it for the money.

You can’t go through the motions and you can’t fake it. You have to be dedicated to what you do for your clients and that dedication comes from the heart.

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If it bleeds, it leads. If it’s thrown out, forget about it.

I serve as the attorney for a registered investment advisor out on Long Island and they forwarded me an email from a plan sponsor regarding a news article from last year of a potential class action lawsuit against a well-known provider.

When I went on Google, I found many articles concerning the case including one which quoted a blog item of mine where I said that claiming that this plan provider as a fiduciary was an uphill battle. Since the articles were about a year and a half old, I took upon itself to get the docket sheet through my online Pacers account to find out what was going on with the case.

A reading of the docket and of the opinions and motions filed, the plaintiffs are on the ropes. The court denied the class action claim and the case has stalled since the plaintiffs wanted leave to amend the complaint, which the court denied. Have you seen any news articles regarding the plaintiff’s problems? Of course not.

Litigation in the 401(k) space is serious business and any aggrieved participant can sue, it just doesn’t mean that’s evidence that the provider did anything wrong Anyone can file a claim, many just don’t survive the defendant’s motion for summary judgment.

News of cases gives us a clue about what’s going on in the 401(k) space, but lawsuits are based on a complaint of allegations. So while you hear news of many lawsuits, you don’t hear much when these cases fail and there have been some big failures in the 401(k) litigation space, but that news isn’t as exciting as one emanating from the press release of an ERISA litigation firms. If it bleeds, it leads.

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Edison must pay in long running Tibble lawsuit

A federal court ruled that Edison International must pay more than $7.5 million to compensate plan participants for its decision to include high-fee retail share mutual funds in its 401(k) plan when identical institutional share classes were available at lower cost in the long running Tibble v. Edison case.

The federal judge said Edison breached it fiduciary duty of prudence by including 17 mutual funds in its 401(k) plan that could have been obtained at lower cost. The case was a watershed for the industry because it was the one big case that held that plan fiduciaries need to make sure of the costs of the investment options offered under the plan.

This decision in California is now only the second time that a final judgment reached after trial in a case accusing a 401(k) plan fiduciary of imprudent and disloyal investment selection. The first involved a $13.4 million judgment against ABB Inc.

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Focusing Just On Fees Can Make 401(k) Plan Sponsors Neglect Other Problems

My latest article pm can be found here.

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If they could do it to them, they’ll do it to you

There is a great scene from the movie In The Line of fare where Clint Eastwood’s character Frank Horrigan who is a Secret Service agent is on the phone with potential Presidential assassin Mitch Leary, played by John Malkovich. Leary calls Horrigan a friend on the phone and Horrigan retorts: “I’ve seen what you do to friends.” Horrigan just saw photos of Leary’s dead friend who was killed because Leary slit his throat.

If you see someone do badly to someone, realize that you can be next. So if you’re working for someone and they do something bad to an employee, that means they can do that to you. Same with a plan provider that you’re working with. If you see them acting in an unprofessional manner with an employee or another plan provider, chances are they will do that to you. Heck, I’ve learned it the hard way with a plan provider I worked with, who did some terrible things to their employees. It shouldn’t have been a surprise when they skirted a huge legal bill and then avoided service of process before I eventually got a default judgment. You’re not special, so bad behavior geared towards someone else can eventually be geared towards you.

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DOL Kicks The Fiduciary Rule Further Down The Road

The Fiduciary Rule is like a bad soap opera where the action takes too long to happen and it’s just stretched out over time making small turns with some end game to happen later down the line.

The Office of Management and Budget has approved a proposal to delay for 18 months implementation of the remaining provisions in the Department of Labor’s (DOL’s) fiduciary rule.

The DOL has proposed pushing back the applicability of the enforcement mechanisms in the fiduciary rule from Jan. 1, 2018, to July 1, 2019, while it undertakes a review of the measure mandated by the Trump White House.

What does it mean? The DOL under Trump wants to gut the rule and it needs the time and political capital to do it. Taking out the enforcement mechanism of the fiduciary rule makes the rule essentially toothless. It kicks the can down the road to the point where the DOL could kill the new rule once and for all. The problem with kicking down the can is that any political future is uncertain. Just ask the DOL under President Obama making the applicability date in 2017 when they thought Hillary Clinton would be President.

What will happen with the rule? Your guess is as good as mine.

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