The Rosenbaum Law Firm P.C. Blog

Retirement plan assets are for the exclusive use of plan participants, it’s not supposed to be for the use of fiduciaries for their own use.

The fiduciaries of an international design firm in Moorestown, N.J. must pay more than $2 million to restore mismanaged assets to the company’s retirement plan and in penalties following an investigation and litigation by the Department of Labor.

DOL’s Employee Benefits Security Administration (EBSA) determined that InterArch Inc. and Shirley and Vernon Hill, fiduciaries of the InterArch Inc. Profit-Sharing Plan, violated their fiduciary duties under ERISA.

Through an investigation, the DOL discovered that from at least Aug. 30, 2016, through the plan’s June 30, 2020, termination, the fiduciaries invested the plan’s assets in two companies to which the fiduciaries had significant ties. Shirley Hill, who owns the design firm, invested the bulk of the plan’s assets in a bank owned by her spouse, Vernon Hill. Their unlawful investments cost the plan more than $17 million after the bank’s shares plummeted. The plan’s position in the stock of one of the companies reached almost 70% of the plan’s portfolio. In June 2020, the design firm terminated the plan and sold the shares for 96% less than their peak value.

InterArch Inc. and fiduciaries Shirley and Vernon Hill have agreed to pay $1,836,853, to plan participants and $183,685, in penalties to resolve the allegations.

InterArch Inc. and the Hills will additionally pay approximately $1.1 million to the retirement plan to resolve a separate private class action lawsuit filed by a former employee.

In Notice 2022-45 the Internal Revenue announced that qualified retirement plans (and IRAs have until December 31, 2025, to adopt amendments related to coronavirus-related distributions and plan loan relief under the CARES Act, and qualified disaster distributions under the Relief Act.

That notice also extended the amendment deadline for the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

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

My latest newsletter for plan providers can be found here.

A lawsuit against Goldman Sachs reiterated one point that most plan sponsors and their advisors forget: an investment policy statement (IPS) isn’t required. However, Goldman Sachs is a financial powerhouse and its professionals had enough experience to pick investments. Unless you are a financial advisory firm, get an IPS because even with a good financial advisor, you’re not as sophisticated investor as someone who works on the Goldman Sachs 401(k) plan.

If there is one opinion that I have that is argued about many times is my two cents on the use of the largest payroll providers being in the Third Party Administration (TPA) business. Usually, the people who criticize my opinion tend to work for those payroll providers.

My opinion is my opinion, it’s based on 24 years of experience as an ERISA attorney, I doubt you can say my opinion is biased since I haven’t worked for a TPA since 2007.

I believe that the TPA business is a very tough job, it just shouldn’t be someone’s ancillary business if you just see it as just an offshoot of your primary business. My problem with payroll provider TPAs is that they require too much of the plan sponsor to do the heavy lifting, aren’t very creative in plan design and take an assembly line approach to retirement plans. Henry Ford once said you could pick the color of a Model T as long as it was black. Offering retirement plans on some sort of plain vanilla prototype with no discussion of other designs and combo plans with cash balance or defined benefit is malpractice if it costs the plan sponsor money by not maximizing the use of employer contributions.

Mcdonald’s approach to fast food is fine, but retirement plans administration isn’t something that you could quickly push out. Payroll Provider TPAs isn’t a black or white issue; I’m sure a three-employee company using safe harbor 401(k) might be a good fit. For most plan sponsors, it’s not. I’ve seen fewer problems with standalone TPAs than with those two big payroll providers in terms of issues and plan errors. Standalone TPAs have less of a churn rate than payroll provider TPAs, they have larger plans, more plans under administration, and are more efficient in plan design. In addition, What payroll provider TPAs forget to tell you is that if you fire them as a TPA, they’ll fire you as a payroll customer and that payroll integration they talk about is something they offer to other plan providers like Empower. If payroll integration is such a big deal, why do they offer it to competing TPAs?

Again, it’s my opinion based on 24 years of experience. Believe me, I’d make more money as an ERISA attorney by keeping my mouth shut about this because when you speak out against these big payroll providers, they don’t refer you to much business.

January 1 will be two years of pooled employer plans (PEPs). While I know there aremany plan providers who think this is the greatest thing since sliced bread and a few providers that think they’re awful ad no part of it. The fact is the status of PEPs is between the two.

While a lot of people went into starting PEPs, successful PEPs with assets nearing over $100 million are few and far between. Why? Getting a plan with that much assets takes a lot of time, especially when adding up adopting employers with zero or little assets. With state and local mandated requiring employers to starting a plan or joining a mandatory IRA program, I think there is that need in the marketplace for PEPs. My concern is that there just too many PEPs out there and many will just fail.

Another issue is that I think the Department of Labor needs to issues guidelines.

Success has many parents and failure is an orphan. In addition, everyone loves 401(k) plans when the market is doing well.

Thanks to a weakening market, many retirement plan participants are turning to their plan’s websites and apps for help, but they aren’t as happy as they used to be.

Per a new JD Power survey, satisfaction on participants’ websites or apps is down 12 points (on a 1,000-point scale) this year, as 53% of retirement plan investors are now classified as financially unhealthy and 63% say they have challenges managing their accounts digitally.

During the past year, the percentage of retirement investors classified as financially healthy has plunged to 47% from 60. The satisfaction with retirement plan digital experience has fallen 12 points.

Goldman Sachs won a dismissal of a proposed class action over its alleged imprudent use of high-cost, underperforming proprietary mutual funds as investment options in their retirement plan.

U.S. District Judge Edgardo Ramos in Manhattan found no proof that Goldman’s 401(k) retirement committee’s decision to use five funds managed by Goldman Sachs Asset Management created a conflict of interest because a Goldman affiliate received management fees. Ramos also refuted that the failure to adopt an investment policy statement was a breach of fiduciary duty.

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