A Plan Sponsor Should Seek Out A Retirement Plan “Dentist”

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

Posted in Retirement Plans | Leave a comment

The Perilous Move From One 401(k) TPA To Another

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

Posted in Retirement Plans | Leave a comment

Default rate is higher

The Plan Sponsor Council of America through their annual survey has indicated is that 3% is no longer the most common default deferral rate for automatically enrolled 401(k) plan participants.

The new most common default deferral rate is now 6%. The most common default deferral rate is now 6% of pay (32.9%) rather than the 3% of pay that was the norm since 2006 (29% of plans) when automatic enrollment was added to the Internal Revenue Code that year.

While some naysayers will still object to automatic enrollment, this.  change comes as no surprise to me, as the liability protection given to plan sponsors through the use of a qualified default investment alternative has made automatic enrollment, a great asset for any plan that wants to add automatic enrollment.

Posted in Retirement Plans | Leave a comment

Employers offering Roth is way higher

The numbers of employers allowing Roth 401(k) savings have dramatically increased.

The percentage of 401(k) plans to offer the option grew to 86% in 2020, up from 75% in 2019 and 49% a decade ago, according to the Plan Sponsor Council of America, a trade group.

There was never a reason as to why a plan sponsor wouldn’t offer one since it didn’t impact testing. I think time, education, and the general feeling that tax rates will increase over time, have helped the surge of interest in adding them.

Posted in Retirement Plans | Leave a comment

Changes to 5500 reflect PEP requirements

The Department of Labor’s Employee Benefits Security Administration (EBSA) released their final revisions to the Form 5500 and the Form 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan for the 2021 plan year and includes changes that apply to pooled employer plans (PEPs).

The instructions to the 2021 Form 5500 for Part I, Line A (the multiple-employer plan checkbox) are being amended to note that:

·      a PEP operated by a pooled plan provider (PPP) that meets the definition under ERISA Section 3(43) is a multiple employer plan (MEP); and

·      like other ERISA-covered pension MEPs, a single Form 5500 Annual Return/Report is required to be filed for a PEP.

The 2021 instructions to the Form 5500 and Form 5500-SF for the MEP check box are amended to require MEPs to include a new data element on the currently required 2021 non-standard attachment, specifically the “Aggregate Account Balances Attributable to Participating Employer.”

Posted in Retirement Plans | Leave a comment

ERISA pick stalled

While Lisa Gomez’s nomination passed a Senate committee hurdle, her nomination to lead the Employee Benefits Security Administration (EBSA) seems to have stalled.

The Senate Health, Education, Labor and Pensions (HELP) Committee had approved  Gomez’s nominations as Assistant Secretary for EBSA at the Department of Labor on Dec. 2, on a near party-line vote of 12-10.

However, the full Senate has not acted on her nomination, and prior to adjourning the first session of the 117th Congress for the holiday break, Gomez was among several nominees whose nominations will not be allowed to carry over into the second session. That means her nomination must be resubmitted after the new session convenes in early January and the hearing/approval process repeated.

Gomez currently is a partner at labor law firm Cohen, Weiss, and Simon LLP, representing employer and union pension plans. She joined the firm in 1994, became a partner in 2002, and currently serves as Chair of the firm’s Management Committee. I briefly served as an associate at that firm in 2007.

Posted in Retirement Plans | Leave a comment

Don’t forget Cycle 3 Restatements

With 2022 here, don’t forget about Cycle 3.

This “Cycle 3” restatement means that all qualified pre-approved 401(k) plan documents will need to be amended, certified by the IRS, and adopted by the plan sponsor by the deadline of July 31, 2022. This is a mandatory IRS requirement with penalties for non-compliance.

Posted in Retirement Plans | Leave a comment

The problem with loans

When I draft a new 401(k) plan for a client, I’ll recommend a loan provision even though it can be an administrative headache. The reason that I add it is because I think participants need to have access to money if in their account if they need it.

However, there are some things that I put in place to take away some of the headaches. I always require a $1,000 minimum for loans, there is no reason a participant should take out a loan for $250 especially when the loan fee charged to their account is going to be $50 or $75. In general, you want it for people who need money and de minimis amounts aren’t going to meet that need.

I also like to have one loan outstanding at a time. I’ve seen plans where participants have 8-9 loans outstanding and it can be an administrative headache to make sure all of them are paid on time.

Even with these provisions, they often become a headache especially when payroll mistakes fail to pay off a loan and you may have a prohibited transaction on the books if quarterly payments weren’t made on the loan. There is nothing worse than to hand a participant a 1099 because you failed to make sure payroll pay off their outstanding loan.

They’re also a headache in the sense that most errors dealing with loans only get discovered on a government audit or when there is a change of third-party administrator. That means errors are discovered years after they take place, creating a migraine or a headache if you’re the plan sponsor that has to fix it.

So while you may want loans in your plan, be cautious in its operation.

Posted in Retirement Plans | Leave a comment

Retirement plan assets dip in Q3

Quarter 3 of 2021 was a little choppy and retirement plan. Assets show that.

Total U.S. retirement assets were $37.4 trillion as of September 30, 2021, which was down 0.5% from June 30, 2021, according to the Investment Company Institute (ICI).

Total retirement assets had grown 4.8% during the second quarter of the year per ICI’s previous report.

Retirement assets accounted for 33% of all household financial assets in the United States at the end of the third quarter of 2021.

Posted in Retirement Plans | Leave a comment

Nokia sued over 401(k) plan

Nokia of America is one of the latest employers hit with a class-action lawsuit over the fees in its 401(k) plan.

The complaint alleges that the phone maker filled its investment menu with funds that had higher fees than other options available on the market, and the plan’s revenue-sharing arrangement led to administrative costs that are well above average, according to the complaint.

The complaint also claims that the 4 bps asset-based record-keeping fee charged to participants made little sense, given the large size of the 401(k). Participants in the plan paid $116 each for plan administration last year, while some comparably sized plans.

Posted in Retirement Plans | Leave a comment