The Rosenbaum Law Firm P.C. Blog

There has been a push to add annuities to retirement plans, but I don’t see it gaining ground.

According to Alight, plan sponsors are hesitant to add it, which was part of the 2019 SECURE Act.

Alight’s data showed that among plan sponsors, 47% cite fiduciary concerns as a major reason for not adding annuities. 44% of plan sponsors are waiting to see how the market evolves, and an equal percentage cite difficulty with participant communication. 38% of plan sponsors blame operational or administrative concerns, and 32% cite participant use concerns as major reasons for abstaining from annuities.

Only 12% of plan sponsors have annuities in their defined contribution plan, 3% are very interested in annuities for the plan, 35% are moderately interested and 51% are not at all interested in annuities in their defined contribution plan.

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

Coriant agreed to pay $1 million to resolve claims it violated its fiduciary duties under ERISA while administering its 401(k) plan. Coriant was an optical telecommunications company that was acquired by another company in 2018.

The settlement benefits participants of the Coriant 401(k) plan who experienced a loss due to liquidation at market value of their Gibraltar Guaranteed Fund (GGF) investments. Coriant invested a large sum of retirement funds into GFF investments. However, Coriant allegedly terminated its 401(k) plan and liquidated participants’ GGF investments without providing proper notice.

Apparently, participants were forced to liquidate their investments at market value as opposed to book value — causing over $2 million in monetary losses.

A plan sponsor was spared from a 403(b) lawsuit, but the advisor is still on the hook.

Two plaintiffs filed a complaint in Texas federal court against their employer, Legacy Counseling Center, Inc. the plan’s manager, Peveto Financial Group, LLC. The court recently ruled that the plaintiffs have standing to bring the suit, but Legacy is exempt from ERISA in this case. Peveto, won’t be held liable for IRS corrective damages, yet could still be on the hook for not permitting wider plan participation if they are found to be a fiduciary.

The lawsuit claims that Legacy sponsored a 403(b) plan managed by Peveto Financial.  The plan only allowed “high-level” employees to participate, but not “rank-and-file” employees. That violated the “universal applicability” rule found in Internal Revenue Code 403(b)(12)(A)(ii) since the plaintiffs worked 20 or more hours per week.

Legacy argued that it was exempt from ERISA since the plan wasn’t covered under ERISA. An employer is exempt from ERISA requirements related to a 403(b) plan if it meets certain criteria, including participation in the plan is voluntary; employer involvement in the products available to participants; and the employer receives no compensation except that which is used to offset the costs associated with payroll deducting.

The financial advisor claimed it wasn’t a plan fiduciary and merely provided investment advice, and was therefore also not liable under ERISA. The judge found that there was a factual dispute, because of one-on-one consultations with participants and Peveto also collected a fee every time a participant enrolled.

U.S. Bank and its 401(k) Savings Plan is the latest target of a class action lawsuit in Minnesota. According to the complaint, from the years 2016 through 2021, the Plan paid an effective average annual administration fee of $41 per participant while the calculations for similar-sized plans would be around $23 per participant.

The complaint also alleges that U.S. Bank should have removed its “high-cost” recordkeeper, Alight Solutions, and its “high-cost” managed account service provider, Alight Financial Advisors, for the benefit of its plan participants, the plaintiffs allege.

They said in Field of Dreams that if you build it, they will come. I think when it comes to offering participants the right to after-tax matching and profit-sharing contributions, I don’t think that is a SECURE 2.0 provision that will be popular.

I started working in September 1998 and got a Christmas bonus of $300. That was my last bonus. I sincerely doubt that plan sponsors will go through the trouble of offering participants the right to have their matching and profit-sharing contributions on an after-tax Roth basis. The contributions done on the Roth would require immediate taxation and would be fully vested. Why would an employer sign up for that? I doubt many will add that option.

The idea that we can have 403(b) Pooled Employer Plans is great news because what could work well for 401(k) plans, may mean great stuff for 403(b) plans.

The problem with 403(b) plans has always been in the non-ERISA space, where the rules regarding the Department of Labor on fee transparency, fiduciary responsibility, and reasonable fees don’t exist. The ills of 403(b) plans can be extinguished if pooled employer plans are extended to the school districts where there are too many competing plan providers with too much cost for plan participants.

Any legislation that is supposed to benefit taxpayers, there is a hidden cost. Look at the Tax Reform Act of 1986, temporary reductions in marginal traded for deductions that were lost for good such as personal interest, most IRA contributions, and passive activity losses. Remember that unlimited state and local tax deductions that we gave up a few years ago?

For SECURE 2.0, there are increased catch-up contributions, RMD extensions, and a treasure trove of some nice participant benefits. Hidden behind everything is this little thing any catch-up contributions by highly compensated employees will be Roth contributions only. Big deal? Ask my wife, who doesn’t think she is highly compensated living in New York and making north of the HCE limit. Roth is a great feature for the handful of people that could actually afford to pay the taxes upfront. I’m not sure people who are eligible for catch-up may continue if they’re forced to pay the taxes upfront on these contributions because they make more than the HCE limit.

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