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.