Fifth Circuit decision doesn’t bury Fiduciary Rule

The Fifth Circuit Court of Appeals vacated the Labor Department’s fiduciary rule, overturning a Dallas district court decision that originally upheld it. By a 2-1 vote, the Circuit Court held that the Department of Labor (DOL) exceeded its statutory authority under ERISA in implementing the rule.

Before you bury the fiduciary rule, to quote Rocky Balboa in Rocky V: “I didn’t hear no bell.” This is only the first loss for the DOL as they won in the Tenth Circuit. Splits in the circuit courts mean that ultimately, this case or similar cases will likely find its way to the Supreme Court.

In this case, the majority ruled in favor of the U.S. Chamber of Commerce and industry trade groups, including the independent broker-dealers’ Financial Services Institute and the Securities Industry and Financial Markets Association. The claim that the judges bought was that the DOL went beyond its statutory authority under the ERISA by the way they imposed the requirement that brokers act in their clients’ “best interests” when handling retirement accounts.

So the story about the new rule still goes on and we’ll likely see a Supreme Court case soon.

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Another Vantage Case, South Carolina style

Knight’s Companies, a septic tank, trucking and concrete block business in sued Vantage Benefits and their principals Jeff and Wendy Richie in Federal District Court in South Carolina, The suit claims that Vantage and the Richies wrongfully transferred approximately $437,744.43 in retirement benefits from the participants of the Plan to a Vantage Benefits’ bank account.
The suit was filed in February and the date for defendants to file the answer to the charges has passed, so another default judgment is likely.

The suit claims that Vantage falsified Plan participant account statements and participant accessible website information to make it appear that participant account balances were whole and accurate. More than 85 percent of the more than $500,000 plan’s account balance is gone.

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M&A, 401(k) & The Plan Sponsor: What You Need To Know

My latest article for can be found here.

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Why would you be affiliated with that?

As discussed in my newest book, “The Greatest 401(k) Book Sequel Ever”, I’m still amazed at my interaction with “renowned” ERISA fiduciary expert turned convicted thief Matt Hutcheson. It’s no a great episode in my career because I didn’t want my name to be in the same sentence with him. Yet I did.

So I’m surprised to hear of plan providers that may be affiliated with other plan providers where the principals have less than sterling reputations. An Aerosmith said it best in the B-Side “Don’t Get Mad, Get Even” (a message I support): “When you sleep with the dogs, you wake up with the fleas.” Your reputation is everything, so I think it’s an absolute mistake to be involved with other providers that will hurt your brand with that affiliation.

As I said in a book, you can build a reputation over a lifetime and lose it all in a minute.

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Auto Enrollment is going up

When automatic enrollment was first introduced, it was introduced as a negative election and I thought it was just a cheap gimmick by an employer to help their actual deferral percentage test because all money from the negative election ended up in some money market or stable value fund because there was no relief for plan sponsors in a participant-directed plans. Once it was codified into the law, I became more supportive because it allows assets to be invested in a QDIA fund.

While I’ve grown to love automatic enrollment, so have plan sponsors.  According to a Willis Towers Watson study, 73% of plans now offer automatic enrollment. Even though 47% thinks the enhancement might be too costly.

I’ve been an advocate of automatic enrollment because most employees will be too busy to opt out and they’re saving for retirement involuntarily. A good financial advisor can get these automatic enrollees to maybe increasing their deferral percentage and actively invest. I just think it’s a good thing to get people to save for retirement even if you have to draft them.

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Vantage defaults in first case decision

It didn’t take long for the first decision in a lawsuit against vantage Benefits and its owners when they defaulted.

A default judgment was handed down by Judge David C. Godbey of the U.S. District Court for the Northern District of Texas in the Caldwell and Partners Inc. v. Vantage Benefits Administrators case. The court held Vantage Benefits Administrators, Inc. and its CEO Jeffrey A. Richie liable for $10,170,452 in damages, plus $297,836 in attorneys’ fees and costs for violating ERISA by allegedly embezzling plan assets.

The suit claimed that plan assets were transferred by Vantage by directing Matrix to transfer plan assets to Vantage’s operating accounts.

Vantage and Richie didn’t contest the case in court as Vantage was shut down by the FBI and he remains under investigation by the Department of Labor.

From experience, I know how it’s almost impossible to collect on a default judgment as I have one against a former client of mine that still remains in business as an Atlanta area third party administration firm. You should assume that Caldwell and Partners will seek redress against Matrix, but that will likely be through mandatory arbitration.

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Don’t be cheap when it comes to your retirement plan

As I have stated so many times, I don’t want to hire employees because I was an employee once too. That pretty much means that I never met an employee whoever thought they were overpaid. For that matter, I never met an employer who thought that they pay their employees too little.

Despite what my former colleagues at union-side law firms, employers typically don’t have a treasure chest of jewels they are keeping away from their employees, it’s just the dynamic of a relationship where an employee wants to make as much as they can and an employer wants to pay as little as possible. It’s not evil, just human nature.

For those that never ran a business, they don’t understand how costs of payroll and benefits must be tied to revenue because an employer’s pocketbook is not limitless.

Thanks to medical costs and taxes, it’s expensive to have employees. Employers are taking away benefits and not putting benefits out there that are really enticing to current and prospective employees. As an employee, regardless of where I worked, the health plan got worse and worse because medical costs are spiraling out of control and the employer had to rein in costs.

While employers may feel free to cut back on the benefits they offer, the one benefit that they can’t afford to neglect is a retirement plan. An employer can certainly cut back on the contributions they make to their retirement plan(s), but they can’t just cut back on the services to their plan by sticking the plan with a cheap provider (if they are the ones paying for administration, rather than the plan) if it’s going to negatively affect the plan’s administration and compliance.

The reason is because employers as plan sponsors are also plan fiduciaries too. So employers still may want to cut back on benefits, they need to make sure that they don’t do something that could negatively impact their role as plan fiduciaries.

Any change of plan provider or even in a change in benefits should be done in consultation with your plan providers and/or ERISA attorney to make sure that any cutbacks in benefits you must make won’t increase your plan fiduciary liability exposure.

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Another Vantage lawsuit with an advisor twist

A great scene is in GoodFellas is when Jimmy chastises Henry for getting arrested because he allowed himself to be incriminated through wiretaps. For years, I’ve been warning advisors about the referrals they make and it seems to have sparked a lawsuit in connection with the allegations of theft by Vantage Benefits.

Architectural engineering company Allpoints Inc. is suing their advisor, World Equity Group Inc. for negligently choosing Dallas-based Vantage Benefits Administrators Inc. as Allpoints’ new administrator for its employee retirement funds. It is alleged in the lawsuit that Vantage stole over $400k from the Allpoints’ 401(k) plan.

Allpoints claims that World Equity Group should have researched Vantage Benefits and its owner Jeff Richie where it could have come up with information about Richie and his punishment by the Securities and Exchange Commission. Richie was previously a registered broker who was barred from the financial services industry following an action for securities fraud.

Whether World Equity Group should be liable for making a referral and/or having a strong hand in getting Vantage hired, the fact that they are being sued in a Cook County Illinois court is all that advisors should be concerned about since there is a price to be paid for a bad referral.

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Why Your 401(k) Plan Should Get a Tune-Up

My latest article on can be found here.

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Plan Sponsors have to Keep Track of All Plan Amendments

I didn’t have such a great time at law school because I felt the administration and much of the faculty weren’t honest when it came to the study of law and more importantly, our job opportunities. There was one law professor who was a shining light because he told it like it was and was just up front and honest with people. His name is Bernie Corr. I don’t mind the C+ in Civil Procedure because he told us that some of us were getting that grade and I did better with him in two other classes.

History has shown that I love people who are upfront and honest about things and I show less love for those who hide the ball.

When it came time to a Bankruptcy seminar course, he told us that any changes in bankruptcy are a boon to bankruptcy law and was insisting that many of these changes might have to do with making money for bankruptcy attorneys.

Every 6-7 years every retirement plan has to be restated into a new plan document and every few years, there needs to be ancillary amendments. I admit that I steal professor Corr’s line that all these amendments and restatements are to keep ERISA attorneys like me employed.  Seriously, retirement plan laws change and plans have to be amended to reflect that.

For the past 15 years, there has been a host of plan restatements and ancillary amendments that have been required for all retirement plan sponsors. There have been so many ancillary amendments, that even I have to keep a full checklist of what was done. Plan sponsors are in worse shape because many don’t have all the ancillary amendments (whether they were done or not and whether they were actually signed or not) and the Internal Revenue Service (IRS) knows that especially when it comes to plan audits. Not having all the required plan amendments and restatements is an excellent way for the IRS to make a few shekels on penalties when auditing a plan.

The problems with plan sponsors missing amendments probably has increased since the IRS has pretty much eliminated the favorable determination letter program.

So it’s a good idea for a plan sponsor to take inventory of their plan documents and amendments to make sure they have a set that is up to date and correctly dated. If not, a submission to the IRS’ voluntary compliance program beats getting penalized on an audit because it costs a lot less.

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