The Rosenbaum Law Firm P.C. Blog

In the movie Casino, Robert DeNiro as Sam Rothstein wanted to take on the Nevada Gaming Board after they denied his request for his license. Andy Stone, a Teamster controlled by the Mafia and played by Alan King told him it was a bad idea: “The old man said, ‘Maybe your friend should give in.’ And when the old man says ‘maybe’, that’s like a papal bull. Not only should you quit, you should run!”

I’m telling you that if you have a 401(k) plan, don’t allow crypto investing, just because the Department of Labor (DOL) is saying you should be cautious and are looking at plans that offer it.

The DOL has published compliance assistance for 401(k) plan fiduciaries that are considering plan investments in cryptocurrencies, and it sounds like a warning.

The department’s Employee Benefits Security Administration (EBSA), published Compliance Assistance Release No. 2022-01  cautioning plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.

The guidance states that the DOL has “serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies” or other products whose value is tied to cryptocurrencies.

EBSA says it expects to conduct an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products, and to take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments. What does this mean? Until crypto is regulated and DOL offers guidance that it’s OK, don’t do it.

I served almost 10 years as an ERISA attorney for two third-party administration (TPAs) firms. A good chunk of my time was putting out fires, caused by my untrained plan administrators. So unlike some ERISA attorneys who know no life outside a law firm setting, I have a special understanding of what goes on with plan provisions and how they may be messed up.

I stress the concept of keeping it simple, stupid. I like provisions that are less likely to be screwed up. One area is the match. While I understand the desire of plan sponsors to match employee deferrals on a payroll period basis, I prefer that contributions are made at year-end. The more times the employer contributes, the more likely there is an error in the calculation and allocation. When it comes to plan administration, fewer acts by the plan sponsor and the TPA is more. In addition, how many plan sponsors were in trouble when they matched on a payroll period basis and no longer had the funds to fund them during the initial COVID outbreak.

A year-end match that is discretionary creates flexibility and fewer chances of the allocation getting screwed up.

We can certainly our disagreements politically, but I always believe that when given a choice people don’t want to deal with a government-run retirement offering.

So when it comes to mandated IRA programs by states for employers that don’t offer a retirement plan, I believe that pooled employer plans (PEPs) are the option for employers that have to offer a retirement plan or a stated mandated IRA program.

The American Views on Defined Contribution Plan Savings study shows that 75% of Americans have a favorable impression of 401(k) and similar retirement plan accounts, which probably means they would have less of a preference for those plans mandated by the government.

I hear a lot of ideas about retirement plans and a lot of them aren’t very good. I also get propositioned about services that are unnecessary and too expensive. Yet, when I hear something good and think it’s appropriate for plan sponsors and plan providers, I will pass it forward.

One of the facets of being a retirement plan sponsor and plan provider that is a pain in the rear end is plan notices and missing participants. My friends at Plan Notice (planotice.com) have developed a great service for plan sponsors to tackle both issues and I think it’s something that you should consider, especially if there is no cost involved.

As we have a continuing consolidation of the retirement plan business, the big get bigger.

HUB International Limited has acquired Louisville, Kentucky-based Taylor Advisors, Inc.

Taylor Advisors specializes in financial consulting and investment advisory services for financial institutions.

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

Advisors ask me all the time about the role of education in participant-directed 401(k) plans. Participant-directed 401(k) plans that are governed under ERISA §404(c) offer the plan sponsors liability protection based on a participant’s gains or losses on their account when they direct their own investment.

There have been so many misconceptions that plan sponsors and advisors have had concerning ERISA §404(c) plans. They had this belief that if they just give a mutual fund lineup and some Morningstar profiles to plan participants that they are exempt from liability. ERISA §404(c) protection is about following a process and Morningstar profiles are just not enough education to give to plan participants. On the flipside, education to participants doesn’t have to amount to an MBA education.

I think an effective education component to ERISA §404(c) plans should include enrollment meetings where the characteristics of the plan are discussed, as well as the investment options, and offering the building blocks of financial education to assist participants to get a better understanding on how to choose investments.

In addition, written materials such as plan highlights and some Morningstar profiles should always be distributed.

Also while many advisors dislike, one on one meetings with participants should always be offered. While most participants will probably shun such meetings, they should always be offered to those that want them because as we know, every participant has a different financial goal and need. One-on-one meetings offer participants individualized attention on asset allocation and fund choices; it can be an effective means of educating plan participants more than what a general enrollment meeting can offer. It can help participants understand how retirement plan assets relate to their other assets as part of a comprehensive financial plan.

Advisors should always look at education as liability protection because offering participant education helps a plan sponsor minimize their liability under ERISA §404(c). While I always stress education as an important part of the fiduciary process, it’s not about achieving a specific result from participants directing their own investments. Offering participants education is like the old proverb, “You can lead ahorse to water, but you can’t make him drink.” So no matter how great the education component is, there is no guarantee that it will help plan participants achieve a better financial result because like they say, there is no guarantee in life, except maybe death and taxes. The participant who put all his money into a mid-cap fund because he considers it the “average of the market” may still do so even after getting an education at the enrollment meeting and through one on one meetings. As with most things with retirement plans, it’s about following a process and not guaranteeing a result.

We’ve had pooled employer plans (PEP) since January 1, 2021, and. with the weekly press releases on new PEPs, I’m just wondering how many PEPs are already dead.

Building a successful PEP will require distribution, dedication, and time. A press release to announce a PEP is easy, being able to bring in assets. Is hard.

Just wondering how many PEPs are already dead, I assure you that there won’t be a press release for that.

Former employees have sued Ricoh USA, alleging breaches of fiduciary duty under ERISA.

It’s alleged that Ricoh failed to review the plan’s investment portfolio to ensure investment options were not expensive. Additionally, the complaint alleges that the plan sponsor failed to control the plan’s recordkeeping and administrative costs.

The complaint alleged two claims against defendants: breach of fiduciary duty of prudence and failure to monitor plan fiduciaries.

The plan has more than 18,619 participants and more than $2.1 billion in assets under management.

Per-head charges in the Ricoh plan were $103.54 in 2020 and $86.14 in 2019, the complaint states that no more than $35 should be charged to a participant.

Wells Fargo & Co. said the Labor Department and other federal agencies are looking at its 401(k) plan.

In a filing, the banks stated that the agencies are “reviewing certain transactions associated with the employee stock ownership plan feature of the company’s 401(k)  plan, including the manner in which the 401(k) plan purchased certain securities used in connection with the company’s contributions to the 401(k) plan.”

What does it mean? We don’t know, it could just be a random investigation.