The Rosenbaum Law Firm P.C. Blog

I’m terrible with compliments. It’s probably because as a kid, I didn’t get many and I was always wary that any comment I’d make would get a negative comment back. Somehow saying how I was getting better at Intellivision  Auto Racing would get some potshot about my schoolwork.

As people, we are all a work in progress, and we are all shaped by our experiences, both good and bad.

What we can’t afford is to allow those negative experiences to bind us and hurt us in developing relationships with plan providers and clients. We can’t blame our past and live it, we need to do better in the present and future.

The Department of Labor (DOL) has cautioned plan fiduciaries about private equity investments as components of investment options, such as target-date or balanced funds.

The statement however doesn’t withdraw DOL’s 2020 guidance detailing factors plan fiduciaries to consider when evaluating a professionally managed asset allocation fund with a private equity component as a potential investment option.

The original 2020 information letter concluded that plan fiduciaries wouldn’t necessarily violate their ERISA duties by selecting an investment option with a private equity component after objectively considering the factors identified by DOL. Since then, the DOL grew concerned that plan fiduciaries could expose participants to “unwarranted risks” by misinterpreting the information letter as support for using private equity investments with investment options.

The DOL has further explained that the original letter was intended primarily for defined contribution plan fiduciaries that also oversee defined benefit plans and already have experience evaluating private equity investments for those plans.

In addition to that restatement for Cycle 3 that must be completed for most defined contribution plans is July 31^st, the deadline to adopt retirement plan amendments for SECURE Act and CARES Act changes is December 31, 2022 for calendar year plans.

Get that tack on amendment before it’s too late.

David Letterman once had a joke about those USA Today graphs where he claimed they had a graph that said that “3 out of 4 Americans make up 75% of the population.”

According to MetLife’s newest Stable Value Study, more than two-thirds of defined contribution plan sponsors are concerned about the impact of market volatility on retirees (70%) and plan participants within 10 years of retirement (67%). More than half (52%) are concerned about those more than 10 years away from retirement.

We have a volatile stock market right now after the gains from when the COVID pandemic started back in March 2020. Of course, plan sponsors are going to be concerned. Thank you plan sponsors obvious.

The numbers don’t lie. We are $29 trillion in debt. Our biggest expenditures will be entitlements and paying the interest on that debt. It stands to reason, that eventually,  we will have to increase tax rates to pay that.

So I think that people will understand that, and decide that deferring salary in a 401(k) plan on an after-tax basis may make more sense. If a participant is more than 5 years from retirement, I expect Roth will become more of. a topic for discussion.

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

My latest newsletter can be found here.

If your firm has been touched by the great resignations of 2022, you may have some issues to consider:

1) Definition of compensation and the treatment of the payment of sick and vacation pay. How is it handled? How will it be paid? Will deferrals have to be taken out?

2) Will the resignations affect headcount to the tune you contract 20% of. Your workforce? If so, the Internal Revenue Service might consider this a partial termination.  If people quit, rather than a contraction of your business, document it and. document the resignations.

As a plan sponsor, you hear the numbers like 3(16), 3(21), and 3(38) thrown around. The selling of fiduciary services is big. Business over the last 10 years as plan providers want to assume some or all of the liability for parts of your plan.

The problem is that providers might be upselling their service and obfuscate that their service is paltry in terms of liability protection compared to other providers.

That is why it’s essential to have these materials service contracts reviewed because not all similarly titled services offer the same amount of liability protection.

When it comes to plan design, I believe in the idea of KISS:  keep it simple, stupid.

While the SECURE Act protects plan sponsors from liability by offering annuities, I have zero interest in adding an annuity option to a 401(k) plan. I like lump sum and partial withdrawals as payment options, everything else takes too much work and plan sponsors have too much work.

The only folks who will push annuities in 401(k) plans are the folks who stand to make money off of it. I understand that plan participants have issues on whether retirement savings will last and that’s why they might purchase an annuity, but that’s a choice they can make when retiring and receiving a lump sum payment.