The Rosenbaum Law Firm P.C. Blog

I used to joke that to save money, the local news stations should recycle footage that they collect from hardware stores and supermarkets when there is a snowstorm because the reports of people buying shovels, snowblowers, milk, and bread are the same every year and every snowstorm.

The same can be said about articles and reports about how bad 401(k) plans are. We heard about how bad the 401(k) plan was and the high costs back in 2000 and 2008 when the markets had huge corrections after big financial gains. If the markets have a correction this year (the markets are likely overvalued), expect to hear the complaints about how bad 401(k) plans are.

Yes, defined benefit plans were great, until plan sponsors realized it was cheaper for them to offer 401(k) plans and shift the cost of funding retirement from their ledger and switch it to the burden of employees. It’s not the 401(k) plan’s fault, it’s just employers who wanted to cut down on costs. People living longer didn’t help either.

So when you hear 401(k) plan complaints, just expect that means markets have gone south.

The Department of Labor (DOL) Employee Benefit security Administered has filed a lawsuit in Federal District Court for the Southern District of New York against Velo Corp. of America for breaches of fiduciary duty under ERISA.

Velo Corp. is the named owner and operator of Quik Trak, a New York City area courier and bike messenger service. EBSA claims that the plan sponsor and trustees breached their fiduciary duties, by committing prohibited transitions and engaging in self-dealing. EBSA claims that the defendants failed to remit all employee contributions to workers’ accounts from January 2016 onward; allowed contributions to remain unsegregated in Velo’s bank accounts; and failed to ensure that all employer matching contributions for employees were made to the plan.

From experience, the DOL works very slowly and quietly, this must have been after months and months of the EBSA investigator, getting no answers as to the whereabouts of the missing contributions.

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

When I was at law school, I was the editor of the student magazine there and I broke the story about a scandal at one of the law journals. The editor in chief was implicated and she gave me a letter from her lawyer, asking for all my sources, who I talked to, and everything but my name, rank, and serial number. This was the first lawsuit threat that I got and I was hyperventilating. Then I looked down on my desk and noticed that the work number for this editor in chief was the same phone number as her attorney and this attorney was in international law, not libel. I have been threatened with litigation over one of the payroll provider Third-party administrator articles I write annually (except the 13th annual edition this Spring). The point is that clients and non-clients can have a threatening lawyer to you all the time.

Occasionally, these letters are serious especially if you have serious liability exposure. Most of the time, it’s just used as a threat to get a better result than by doing nothing. When I got that letter in law school and I gave it to the Dean, he said I should settle immediately. I think when you get a letter from a lawyer, speak to a lawyer. They will certainly help you gauge the seriousness of the matter and what the response should be. I know attorneys are expensive (except me J), but I think the greatest mistake is thinking you can handle a legal threat on your own.

That lawyer letter is like playing poker. Most of the time it’s a bluff and sometimes it’s not, you need someone who can tell the risks and what the response should be. If you get a letter from a lawyer, you know where to find me.

As a 401(k) plan sponsor, you need to make sure that all your plan providers understand any ownership interests in other companies that you may have and make a determination whether those interests constitute a controlled group or affiliated service group.

The problem is that if you don’t do the analysis, you may run afoul of the qualification rules because controlled and affiliated service rules treat the members of these groups as a single employer for most purposes. So if your company is a part of these groups and you do nothing, you may have a huge coverage problem if the other companies don’t have a similar retirement plan. Even if they do have similar plans, there could be discrimination testing problems since all companies need to be tested as one.

So when you get the census information, make sure you answer correctly when it comes to the questionnaire asking you about other ownership interests.

I started my practice almost 12 years ago and I devoted a huge part of it, to helping advisors with their clients. It’s a great way to get referrals, but there are times when the help I provided led me to nowhere. That’s fine because you pay it forward and you always end up getting it back in return.

I will say that for almost 12 years, I’ve maybe been taken advantage of by two advisors. While I never really call people out for wasting my time, I recently made an exception. About a year ago, an advisor brought me a very troubling situation with a client where excise taxes would cost their client millions. I spent hours and hours, on the phone with them and introduced them to a specialist who could help them out. When I presented a retainer letter to the advisor’s client, the very opinionated client was nowhere to be found. Kids today would say I was ghosted.

These things happen. What annoyed me was that the advisor wasn’t apologetic for his client wasting my time, but what annoyed me was his narcissism. During this whole dance with his client, he wasted my time calling me and suggesting that I wasn’t charging the client enough, mind you I was never retained by the client.

I brought this up with this advisor lately and this is the only time I’ve ever had a dust-up with one of these advisors. He made every excuse in the book and I said that while he isn’t responsible for his client’s behavior, he was responsible for his and a simple apology for his client wasting my time, would have sufficed.

I emailed the advisor because I was working with a client who needed a new third-party administrator for a plan that was completely screwed up and I recommended the one TPA that I knew, who could do the work. While the client was haggling, I had no time for wasting the TPA’s time. My time is valuable, so is the time of another plan provider.

In Hughes v Northwestern, a unanimous Supreme Court held that the Seventh Circuit erred by holding that a plaintiff can’t state a plausible claim against plan fiduciaries based on the inclusion of a few imprudent investment options if the investment lineup offered to plan participants is diverse and contains prudent investment options.

It’s a win for plaintiffs and ERISA litigators as the Supreme Court didn’t curtail a participant’s right to sue in Federal Court. However, the case did nothing in setting pleading standards, so it will still invite sloppy ERISA litigators who just show a plan is expensive without showing how that’s an actual breach of fiduciary duty.

So expect more fee litigation cases and more fee litigation dismissals.

Rev. Proc. 2002-4 listed the update for requesting Internal Revenue Service (IRS) determination letters, private letter rulings, and other tax advice on employee plan matters.

IRS is transitioning this year to mandatory electronic submission of Form 5300, Application for Determination for Employee Benefit Plan. Starting July 1, 2022, Form 5300, attachments and the user fee must be submitted electronically through pay.gov. IRS will return paper applications submitted after that date.

IRS will not make a determination on whether a pooled employer plan (PEP) satisfies the qualification requirements for PEPs before the IRS issues final regulations on those requirements.

Plan sponsors requesting determination letters no longer need to attach copies of their plan’s trust document to Form 5300 or 5307.

When you’re a plan sponsor and you run your own proprietary mutual fund business and have your 401(k) plan invest in said funds, expect to be sued.

Bessemer Trust Company is being sued over the Bessemer Trust Company 401(k) and Profit-Sharing Plan by plan participants.

The complaint alleges that Bessemer used their 401(k)  plan to promote Bessemer Trust’s Old Westbury mutual fund business and maximize the company’s profits.

The plaintiffs say that the plan investing in Old Westbury proprietary funds cost 401(k)( participants millions in excess fees from high cost, poor-performing mutual funds owned by Bessemer Trust.

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