Nevin Adams, Chief Content Officer of the American Retirement Association (ARA, has announced his “retirement” from that position, effective March 1, 2023.
The ARA also announced that taking over the reins of the ARA’s media business from Adams will be John Sullivan, Editor-in-Chief of 401k Specialist magazine.
As I’m sad to see Nevin retire, glad he will still be churning out articles and having known John Sullivan for 12 years now, happy that he will be Nevin’s replacement.
The Internal Revenue Service announced the 2023 contribution limits for retirement plans.
The salary deferral limit for 401(k) and 403(b) plans will have a $2,000 increase to $22,500, and the catch-up provision for participants aged 50 or over will increase from $6,500 to $7,500. That means participants age 50 and over may have salary deferrals totaling $30,000.
The amount individuals can contribute to their SIMPLE retirement accounts is increased to $15,500, up from $14,000.
Annual IRA contributions increased to $6,500 from $6,000, and the catch-up provision remained unchanged at $1,000.
When it comes to selecting and retaining plan providers, what you have to do as a plan sponsor is to make sure that it’s done on the up and up. You have to demonstrate that the decision was prudent and was a proper exercise of your fiduciary duty. That’s always why I tell plan sponsors not to hire relatives as plan providers. Another word of caution is accepting big gifts from plan providers.
There is nothing wrong to accept a box of holiday chocolate or some de minimis gift like lunch at the local diner. As long as the gift isn’t above a big amount like maybe $300, it shouldn’t be an issue. Why are big amounts an issue? There is something called the prohibited transaction rules and transactions between a plan fiduciary and a service provider could be an issue if the plan provider is spending thousands of dollars in gifts to the plan sponsor. Buying Super Bowl tickets for a plan sponsor wreaks as some sort of bribe to the plan fiduciaries as a breach of their duty of loyalty when they’re the people in charge of deciding whether these plan providers stay or go.
I’ll never forget the human resources director of a large law firm who wanted their third-party administrator (TPA) to buy him New York Jets tickets. The TPA bought those tickets in fear and it would have been a bigger issue if the Department of Labor caught wind.
When you start fixing up the house and replacing appliances or items like the front door or the roof you realize that the replacements are more energy efficient. Replacing that old refrigerator or that washing machine can lead to some savings on your energy bills.
When it comes to retirement plans, there are so many of them that are inefficient in either their cost structure or plan design. While cost structure is disclosed to plan sponsors (who have the duty as fiduciaries to determine their reasonableness), plan design inefficiency is something that won’t be discovered until the plan goes through an independent review (like my Retirement Plan Tune-Up) or takes the plan to another third party administrator (TPA). Inefficient plan designs come in all sorts, but it wastes money like that 40-year-old furnace I replaced 11 years ago.
An inefficient plan design wastes money because it either makes less cost-effective contributions or it doesn’t maximize tax-deductible contributions to highly compensated employees. So it either wastes money in unnecessary contributions or is inefficient for tax savings.
In terms of wasting money, it could be a defined benefit plan that has outlived its usefulness or it could be a 401(k) plan with a new comparability plan design and a safe harbor matching contribution (because unlike a safe harbor 3% profit sharing contribution, you cannot use the safe harbor matching to offset any new comparability contributions to non-highly compensated employees like you could with the safe harbor 3% profit sharing contribution). A plan that doesn’t maximize contributions could be a 401(k) plan that consistently fails discrimination testing and doesn’t implement a safe harbor plan design or a plan that doesn’t offer a new comparability profit sharing allocation to highly compensated employees when the plan sponsor can afford it.
Retirement plans are a great employee benefit for retirement savings, but you should never forget the tax savings component it has.
So when I consistently state the claim that plan sponsors need to find a quality TPA that is not predicated on price but predicated on its competency and knowledge of cost-effective, retirement plan design.
When you look for new appliances, you always look for those with an Energy Star sticker. When shopping for TPAs, look for those who would deserve a Tax Star sticker (if one existed, don’t steal my idea!).
I am an attorney, but I don’t play one on TV.
I have been practicing in the ERISA field for over 24 years and that is all I have done since I first started working after getting my tax LLM degree at Boston University.
When people find out that I’m an attorney, they often ask a question that has nothing to do with ERISA. While I can probably pass the state bar again if I have to, I have forgotten more about the law outside of tax than I remember. So when people ask me for legal advice outside of tax, I refer the matter out.
On the flip side, just because someone is an attorney doesn’t mean they know ERISA or the Internal Revenue Code as it pertains to retirement plans. Yet when my services come up for a business that has general counsel, I often find the reaction that the general counsel feels that my services aren’t required because they claim that most companies their size don’t get sued over their retirement plan.
I get that reaction a lot. Heck, I worked at a semi-prestigious law firm with some snooty lawyers who could never turn down a free meal but turned down opportunities to refer my services to their clients. Let’s not forget how badly their 401(k) plan was run before I reviewed it (no advisor, no education to participants, no review of investment options for 10 years, and no investment policy statement).
An ERISA attorney isn’t the right person to ask about a criminal matter or adoption and a non-ERISA attorney isn’t the best person to ask if the retirement plan that your company has is being run efficiently and what the liability threats are.
Just ask former attorney Benjamin Eicholz of Savannah, Georgia who was sued by the Department of Labor (DOL) 6 years ago for embezzling and transferring retirement plan assets to his firm and relatives. He got 21 months in prison for obstruction of a DOL investigation into his retirement plans.
An advisor called me up and asked whether it was appropriate if an auditor charged an asset-based fee for the audit. I didn’t say no, but I question the reasonableness as to why an auditor would charge more for an audit of a larger asset-sized plan.
To me, an audit is an audit, one audit fits all. I don’t charge extra for my plan document for larger plans. The advisor said a larger plan does have potentially more liability, but I always think that’s what malpractice insurance is for. To this day, I still don’t know why non-producing third-party administrators charge an asset-based fee. My point is that unless you handle assets, an asset-based fee isn’t appropriate, but that’s just my opinion.
My latest article for JDSupra.com. can be found here.
My latest newsletter for retirement plan providers can be found here.
When it comes to being a retirement plan provider, you should understand that it’s a relationship-driven business and your employees can be a positive outlet for that. One way for them to be a positive outlet is for you to incentivize them to sell, by acting as a referral source.
I worked for a third-party administration (TPA) that had its own advisory practice and when I found out about their referral program, I took a pass. My buddy Rich Laurita thought I was crazy when I suggested I should be treated as any other paid solicitor, where I would receive a portion of the quarterly asset fee. Receiving a one-time referral fee of $350 and I would have to chase the limited partner who was running the place for months to get it, that was no incentive for me. I never sold anything and most of the employees didn’t either. I always felt that one of the reasons that the Communist Soviet Union failed in production was because of a lack of incentivization. I feel the same way about your employees to make referrals. If you create a fair system, they will sell.
When you look at the problems of retirement plans, one that gets short shrift is coverage and that is one of the pillars of qualified plans needed to be fulfilled in order to be a qualified plan. It’s a forgotten rule of compliance that can always end up leading to plan disqualification if the employer fails to properly cover enough of their employees in order to satisfy minimum coverage tests.
I don’t want to get into a complex discussion on coverage, but you need to know that every plan sponsor must annually meet coverage to ensure that the minimum amount of people that need to be covered is. One big problem with coverage is that there are third-party administrators (TPAs) that may forget to actually perform the test or tests and if a plan would have failed, then the corrective methods aren’t made and it becomes a bigger headache many years later, especially when caught on a government audit,
The other problem with coverage is understanding that a group of corporations that have some common ownership and/or some affiliation may be counted as one company under the controlled group or affiliated service group rules which means that employees of these other companies may have to be covered under the one company who sponsors a retirement plan. How does an error like that happen? A TPA not getting the rules analyzed correctly based on the corporate fact pattern or the plan sponsor failing to tell the A that there are these affiliated companies with common ownership that needs to be reviewed.
In terms of errors, failing to provide benefits to employees who needed to be covered under a retirement plan for coverage is one of the deadliest errors made by a plan sponsor and a candidate for plan disqualification.
