The Rosenbaum Law Firm P.C. Blog

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If you own a restaurant, it’s a bad look if the employees order takeout.

If you own a mutual fund company, it’s a bad look if you have other fund companies’ funds in your 401(k) plan.

The problem as a fiduciary of a very large 401(k) plan with proprietary funds in it, you’re going to be a target for a lawsuit. Welcome, Janus Henderson to the group of mutual fund companies that were sued for having their own funds in their plan.

The lawsuit claims that “given the excessive fees charged by the Janus Henderson Funds, and the availability of comparable or superior funds with significantly lower expenses, the compensation paid to Janus Henderson and its affiliates for their services was unreasonably high.”

The lawsuit noted that in 2018, “the most recent year for which average fee data is available, the Janus Henderson Funds’ fees exceeded the average expense ratio for funds within the same asset class category among plans with $250 million to $500 million in assets by an average of 62%.”

Whether there will be a settlement or not, these types of cases are the cost of doing business as a mutual fund company and the. need to keep up appearances.

Wells Fargo has agreed to pay agreed to a $145 million settlement in connection with a Department of Labor (DOL) investigation into the bank allegedly overcharging employees for stock.

The DOL and the bank announced that Wells Fargo will put $131.8 million into employees’ 401(k) funds as part of the settlement.

According to the DOL, the plan’s administrator, GreatBanc Trust Co., had used money in the 401(k) plan to continually overpay for Wells Fargo stock.

According to the DOL, from 2013-18, GreatBanc bought Wells Fargo’s preferred stock for $1,033-$1,090 per share. When they allocated the stock to the participants in the 401(k) plan, the stock was valued at $1,000 per share. That’s a huge haircut.

In addition, the DOL also accused Wells Fargo of not putting enough money into the 401(k) funds as part of the promise to match workers’ retirement contributions. When Wells paid quarterly dividends to participants who had company stock, the bank treated those payments as if they were the actual matching contributions.

As part of the settlement, Wells Fargo agreed to pay a $13.2 million fine to the federal government. The company and GreatBanc didn’t admit wrongdoing.

To avoid headaches, I just think it’s important to prune former employees from the list of participants with an active balance.

As I always say, a former employee is always going to complain a lot more than a current employee. In addition, you have to keep track of them for notices and make sure they don’t go missing. While you need consent for former employees to receive the distribution in excess of your cashout rule, I think it’s extremely important to hassle them every year about the money they have in the plan and that they can take it out. That is in addition to all the other required notices they have to get.

As a plan fiduciary for hundreds of millions of dollars and with a lot of ERISA knowledge, I can see things a mile away.

One of the plan providers that work on one of my plans showed me a litany of complaints by participants accusing multiple plan providers of getting the blackout notices out late and because he lacked access to his 401(k) plan, he wanted $3,000 to make his complaint go away. A review of the work by these plan providers showed that notices were done timely. I guessed correctly that this was the work of a former employee, an actual higher-earning official who didn’t leave on the best of terms. Aggrieved former employees are more likely to make complaints than current employees, that is a fact. This always reminds me of the religious Jewish plan administrator who accused my Jewish bosses of discrimination and was fired for lying about his work hours (the front door FOB lock doesn’t lie), and all he wanted was a quick$3,000 settlement. This is what I call a smash and grab, where someone alleges some. ERISA issues and just want a couple of thousand to go away.

The best defense to these claims is a plan that follows all the rules and regulations set forth for qualified retirement plans.

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

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

Johnnie Cochran could have been an ERISA attorney. The man who claimed: “if it doesn’t fit, you must acquit” would have made a great ERISA attorney because he would tell his clients that a retirement plan must fit like a glove.

Too many retirement plan sponsors leave money on the table by just selecting a financial advisor and setting up a plain vanilla 401(k) or SIMPLE IRA or SEP without consulting an ERISA Attorney and the consultants at a third-party administration firm (TPA).

Retirement plans are like a glove, it needs to fit. While so many advisors take the cookie-cutter approach to their client’s retirement plan needs and use a straight 401(k) plan with a prototype document, so many clients leave money on the table by not getting the right retirement plan and specifications to fit their retirement plan needs.

There are so many different retirement plan designs like unit credit defined benefit, new comparability, safe harbor 401(k), automatic enrollment, cash balance, and floor offset, that an advisor would be foolish not to consult with an ERISA attorney and retirement plan specialist from the TPA.

As I stated in the past, I had a new client who asked me whether he could have a retirement plan that would save him more than the $49,000 he could save from his SEP. As an attorney, he received a $500,000 fee. With his age (75) and income plus no employees, it was a no-brainer that a defined benefit plan would get him more bang for the buck. Needless to say, the $200,000+ he contributed to the defined benefit plan that the first year was a lot more than $49,000.

I had another client that I have had for 10 years because I simply added a safe harbor matching plan design to a client’s 401(k) plan that the payroll provider claiming to be a TPA forgot to bring up. Under my design, the owner was able to maximize her salary deferral limit instead of returning $10,500 of her then $12,000 deferral limit since the plan failed ADP (actual deferral percentage) testing and the payroll provider forgot to also mention that a corrective QNEC (qualified non-elective contribution) contribution would only cost the company $7,000. Thinking only within the box cost that payroll provider, a client, and provided me with a client that has survived 10 years and 3 different firms with me.

Every client has different needs and different business arrangements, so the one size fits all approach doesn’t work because the cookie cutter approach doesn’t work as no two cookies (plan sponsors are the same).

So retirement plans should fit like glove, otherwise, you should take another look.

At least 11 companies, including Booz Allen Hamilton Inc., Citigroup Inc., and Microsoft Corp., have been named in a series of lawsuits going after a target-date index suite that is managed by BlackRock Inc.

A big part of the lawsuits are targeting BlackRock’s index suite is the low-cost “to-retirement” glide path the company’s money managers have used to balance underlying investments.

While to-retirement TDFs stop trading once the target retirement date has been reached, “through retirement” funds assume that 401(k) plan participants will keep their savings in the plan post-retirement. T

With all this litigation on an index target date fund, we need some guidance from the Department of Labor. Otherwise, we will get more lawsuits.

Revising 1975 issued guidance, the Department of Labor released Interpretive Bulletin 2022-01, which updates the “independence” requirement for accountants who audit employee benefit plans under section 103(a)(3)(A) of the Employee Retirement Income Security Act.

The Bulletin revises and restates the 1975 guidance to remove certain outdated and unnecessarily restrictive provisions and reorganize other provisions for clarity.

Under ERISA, plan administrators, subject to certain exceptions, are required to retain on behalf of all plan participants an “independent qualified public accountant” to conduct an annual examination of the plan’s financial statements in accordance with generally accepted auditing standards.

The CPA also must issue an opinion as to whether the financial statements are presented fairly in conformity with generally accepted accounting principles and whether the schedules required to be included in the plan’s annual report are presented fairly and, in all material, respects the information contained therein when considered in conjunction with the financial statements taken as a whole.

As an ERISA attorney, I can attest that independence for an audit has been an issue in the past where an auditing firm might not be independent of another plan provider.