There are stupid 401(k) questions

Whoever said there are no dumb questions is right, stupid questions are another story.

I am outspoken against the idea of a one stop shop where a third party administration firm (TPA) has its own registered investment advisory (RIA) business. The reason was that my old employer was a TPA that had its own RIA business. However the way we operated, we were more like an RIA that happened to be a TPA because assets seemed to dictate everything.

There was an employer that was at another TPA that was failing their actual deferral percentage (ADP) miserably. Refunds were made to highly compensated employees because the employer didn’t want to institute a safe harbor plan design, or a corrective qualified non elective contribution, or automatic enrollment. Somehow, my employer was able to get this plan as a client because they guaranteed the plan sponsor would pass the ADP test. How they could guarantee that is a feat itself.

The salesperson who sold this new plan pulled me aside and told me that the plan sponsor was staffed heavily by illegal aliens and he asked me whether it was proper for the illegal aliens to make salary deferral contributions using fake Social Security Numbers. Yes, you read that right and now you know why I say there are stupid questions.

Forget for the fact it’s identity fraud and you are participating in a conspiracy to aid and abet the employment of illegal aliens, I told the salesperson that illegal aliens don’t make enough income to defer into a 401(k) plan and if they are deported or move back to their home country, how are they going to get those salary deferral contributions back?

Plan asset size should never dictate level of service, level of professionalism, and level of legality. We all have our personal biases, so my bias on the TPA/RIA model is based on prior experience.

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7 Responses to There are stupid 401(k) questions

  1. Pingback: Tweets that mention There are stupid 401(k) questions | The Rosenbaum Law Firm P.C. Blog -- Topsy.com

  2. sheree says:

    Hi there,
    These articles are great. You might consider adding a link that allows you to “print this” and will nicely format the article to print. I don’t see that option here…

  3. Mark says:

    Can you elaborate on the treatment of illegal aliens? While I agree that they should not be hired, I’m wondering what basis there might be for excluding an illegal alien who is employed and otherwise eligible for plan participation? If an illegal alien would participate in the plan and be deported, wouldn’t he/she still be entitled to their vested benefits accrued during employment?

    • admin says:

      Discounting all the issues that would make this almost impossible (no valid social security number, illegal aliens not wanting to defer salary since ethey are illegal), you could try to exclude them by class, but that would be illegal under federal law. While you are correct that a deported participant may keep their vested benefit, I think it would be hard to get the money rolled out of the Plan into their country.

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