The Rosenbaum Law Firm P.C. Blog

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.

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.

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.

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.

One of the option of SECURE 2.0 is allowing employers to offer partricipants the right to Roth Employer contributions where they can pay the taxes upfront, and get tax free treatment on employer contributions.

As long as employers require vesting for employer contributions, I don’t think they will offer it since the Roth option will require full vesting at all times. I can see larger employers like an Amazon offering the feature, with their third party administrators having no issues with the tax reporting requirements.

As someone who represents small and medium sized plans, I just don’t see it catching on.

SageView Advisory Group has announced its acquisition of OnTrack 401(k), based in Frederick, Maryland. OnTrack 401(k) manages $400 million in Assets Under Advisement (AUA) and provides retirement plan consulting services to more than 90 clients.

SageView has locations in 21 states.

The Government Accountability Office (GAO) unleashed a report about crypto assets in 401(k) plans, but it didn’t reveal much.

According to the GAO, industry data suggests that 401(k) investment in crypto assets remains low. But the report leaned more heavily on the Department of Labor (DOL) not having the data to systematically measure crypto holdings in 401(k) plans.

Crypto use in 401(k) plans remains low because the DOL has frowned on it, and there is no mention of this in the GAO’s summary.

GAO’s analysis of investment returns indicates crypto assets have uniquely high volatility, and their returns can come with considerable risk (we all know this). GAO’s simulation found a high allocation (20 percent) to bitcoin, the crypto asset with the longest price history, can lead to higher volatility than smaller allocations (1 and 5 percent). Further, GAO’s interviews with researchers and firms that develop crypto asset investment options indicate no standard approach for projecting the potential future returns of crypto assets.

There are so many times in business where you may craft the greatest idea out there that will make people money that they’d accept, but they still won’t.

When I was at that semi-prestigious law firm, they had a rule that attorneys who originated a client would be entitled to 50% of the fee, regardless of the practice area. So if the real estate tax attorney got a client for their house tax appeal, he could get 509 cents on the dollar if that client utilized any other attorney at the firm, regardless of the practice area. So I thought it was a no-brainer that I could start a national ERISA practice with our existing clients. I was dead wrong. For some reason, these partners who used to have their practice clung to their client lists for dear life.

Great ideas on paper to generate revenue for someone else are great on paper. The problem is when you’re dealing with human emotions, often it defies logic/common sense. You might be dealing with insecurities or other emotions that get people blinded to great opportunities.

As an ERISA attorney for 26 years, I have seen a lot of strange things that plan sponsors have done to risk the ire of the Internal Revenue Service (IRS) and the Department of Labor (DOL). Many of these strange things could have resulted in plan disqualification and the agent from the IRS or DOL let it pass while I’ve seen plan sponsors make more innocent mistakes and pay through the nose. So sometimes it’s not what you do that counts, but the type of agent you get reviewing your mistake.

In 2001, I handled an IRS audit of a client when I was working with a third-party administration (TPA) firm. The IRS agent reviewing the case noticed that the owners of the company were taking out loans over the $50,000 limit. That was a major error. A bigger error was the fact that these owners were shareholders of an S corporation and before 2002, were not even allowed to take out loans. This was a major error that the prior TPA never caught. The punishment, the illicit loans were treated as taxable, deemed distributions and the company had to pay an excise tax for the value of the money loaned out to these owners. To this day, I am shocked that the agent didn’t want blood from a stone, because he was entitled to get it.

On the flip side, I had a client being audited by an IRS agent. The matching contribution was misallocated because the TPA didn’t allocate it correctly, according to the terms of the plan document they drafted. If we added all the years under review, the error was probably less than $1,000. For some reason, the agent was reviewing this thing for months and demanding that the company pay some sort of penalty. In addition, a shareholder of the company who had no salary nor ever worked for the company was not listed as a highly compensated employee. The IRS agent demanded that this owner be listed as an employee even though he was not and his listing as a highly compensated employee would have helped the client in their discrimination testing.

On the DOL end, I had a client who put in all their defined benefit plan money with a fellow by the name of Bernie Madoff. The client, for all purposes, had no investment advisor (since Bernie was busy, running other things) and no investment policy statement. The DOL agent got a promise from the client to make up all the benefits to the employees and that was that.

On the flip side, an owner of a bankrupt business who was entitled to the bulk of the assets from a defined benefit plan was being sued by the DOL because the owner’s actuary failed to produce valuation reports and distribution forms for when the owner was receiving her benefit. While she certainly breached her fiduciary duty by not watching the actuary, this happens all the time when there is a terrible TPA. Is this worth a lawsuit? Not in my mind.

Whether a plan sponsor gets their hands slapped or pays through the nose for plan errors and breaches of fiduciary duty may not depend on the offense, but on the DOL or IRS agent reviewing the case. Sometimes, the plan sponsor’s fate depends on the luck of the draw.

The Department of Labor (DOL) might be releasing changes to its Voluntary Fiduciary Correction Program (VFCP).

The White House’s Office of Budget and Management (OMB) received the DOL’s final rule updating the VFCP on November 20th. Usually, OMB has up to 60 days to review proposed guidance.

The DOL’s changes were first proposed in 2022. The VFCP allows plan sponsors to send certain administrative errors to DOL and receive a no-action letter. These include prohibited purchases and sales, improper loans, and late salary deferral contributions.

The proposal would allow some errors to be self-corrected, and the plan sponsors could inform the DOL after they’ve been fixed. Errors eligible for the self-correction program (SCP) would include salary deferral contributions or loan repayments that are not executed promptly, provided that the cost does not exceed $1,000 and is not older than 180 days.

Since late deferral contributions are so frequent, I support this change.