The Rosenbaum Law Firm P.C. Blog

Vanguard has announced that they will introduce an auto-portability service for its 401(k) plan sponsor clients and their participants.

Vanguard will work with Retirement Clearinghouse (RCH), to provide plan sponsors with a portability solution aimed at simplifying small-balance 401(k) rollovers. The service is expected to launch in mid-2022.

RCH automates the movement of an employee’s 401(k) savings account from their former employer’s plan into an active account with their current employer’s plan.

The intent is that the RCH service can also help simplify plan administration and improve plan compliance by reducing the instances of abandoned accounts and uncashed checks.

When a participant with less than $5,000 in a 401(k) plan changes jobs and does not move his or her money, the plan can transfer the account savings into an individual retirement account. The IRAs are then typically invested in either a money market fund or certificate of deposit, which do not offer high returns.

I invested in cryptocurrency, turned on into it by Mike Alfred, who I know from his Brightscope days. While I like to invest my own, I think these are investments that have no place in qualified retirement plans as an investment.

While I hear chatter that the Department of Labor (DOL) will issue guidance on the matter, I don’t bet in life, but I will bet the DOL will say that fiduciary concerns would bar an unregulated asset to be invested in a qualified plan. I think until there is some sort of government regulation (which could doom the pricing of crypto), I don’t think there is a shot at al;l that they will allow it within the confines of a retirement plan.

The possibility of a Federal mandate for retirement coverage through an employer plan or forcing the employer into an IRA program,  which has been done through state and local governments will prop up pooled employer plans (PEPs).

The reason is simple: employers won’t want to be involved with a government-run plan and a better option than any IRA program is a 401(k) pooled employer plan because there will be more fiduciary work born by plan providers, as well as more retirement savings offered in a 401(k) plan than an IRA.

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

My latest JDSupra.com article can be found here.

My latest newsletter for retirement plan providers can be found here

Non-ERISA 403(b) plans are still one of the stains of the retirement plan business because, without that ERISA protection, it puts participants at risk for high fees and fraud.

Insurance agents Robert Andrew Lotter and Charles Albert Major were charged with securities fraud violations after allegedly defrauding California school system employees with high-risk investments.

Lotter owned and operated an insurance agency, R.A. Lotter Insurance Marketing, Inc., and Major is a California licensed insurance agent. They contacted clients of the insurance agency and leading some of his victims to believe Lotter’s insurance agency was affiliated with the California State Teacher’s Retirement System (CalSTRS).

Lotter also owns The TDS Group, a 403(b) plan administrator for school districts throughout California. Some TDS Group clients were victimized after they were contacted by TDS Group representatives, who are also insurance agents for R.A. Lotter Insurance operating underdoing business as TDS Benefits & Insurance Services.

Victims were solicited and sold stock certificates in Lotter’s companies. Another scheme was that school district employees who didn’t have enough liquid assets to invest were encouraged to rollover money from their 403(b) accounts into self-directed individual retirement accounts (IRAs), which were used to invest in Lotter’s companies. And, at least one educator was convinced to withdraw money from their pension to invest in Lotter’s companies. The California Department of Insurance claims that 23 victims lost more than $3,036,300.

Lotter and Major were previously arrested in 2020 on similar charges of securities fraud and burglary after allegedly defrauding more than 20 victims out of over $4 million.

If people pass on enough incorrect information out there, you start to believe it. When I worked at that semi-prestigious law firm (sorry, Lois), we had a litigation partner that everyone told me was excellent. Being a naïve associate, I took their word.

I was told that he only picked cases that were sure wins. So when I had a personal litigation matter, I reached out. Rather than politely declining the case, he was really rude about it. Needless to say that after many years later and reviewing some of the cases since I left the firm, this litigator only picked winning cases because he had a poor track record in the close cases.

When it comes to working with other providers, make sure any recommendations come with something more than just fluff., If someone tells you how a provider is so good, they should be able to verify how good they are. Referrals and recommendations you get, need to be concrete because the last thing you need is to depend on a “superstar” who belongs on the bench.

In the good old days of participant-directed 401(k) plans, a good chunk of financial advisors did very little work for the plans that they advised. Many of them sat back, collected their trail or asset-based fee, and maybe saw the client once a year. Thanks to changes in regulations and court decisions, the day of wine and roses are over.

Recent court cases make it far easier for 401(k) participants to sue plan sponsors. In addition, anytime there are poor market returns, it creates an incentive for plan participants to sue plan sponsors for breach of fiduciary duty. These cases have shown that many plan sponsors don’t do a very good job in managing the fiduciary process in developing an investment policy statement (IPS), reviewing plan investments against the IPS, and providing participant education.

While so many other plan providers tell me that they are jealous on how much advisors charge and how little they do, a financial advisor is an integral part of limiting a plan sponsor’s fiduciary liability and so many are underpaid for what they do. Sure I have found those advisors making 60 basis points on a $14 million plan and do nothing, there are so many advisors that understand their role and do a great job in limiting a plan sponsor’s liability, The fiduciary process of being a plan sponsor is an arduous task, so plan sponsors need to rely on someone and that someone is a financial advisor, Whether they serve as a broker, co-fiduciary, or an ERISA fiduciary, a financial advisor has a job to do. The days of showing once in a while offering no IPS help or participant education is slowly becoming part of the retirement plan past.

The day where an advisor can simply put a plan on a bundled platform and forget about the plan until the quarterly fee is paid is over. Financial advisors have to help the plan sponsors out to manage the fiduciary process. If financial advisors are not up to the task, then they should surround themselves with those that can like an independent ERISA attorney or a top-notch third-party administrator. Some advisors have sought out the advice of other advisors to offer a turnkey 401(k) platform and support.

Financial advisors can sit back and pretend the good old days are here, but they stand at the risk of losing business to those breed of financial advisors that know their role and will strive to fulfill it.

When I was a kid, I’d be passive-aggressive in the sense that I wouldn’t let people know how upset I was about things. Thanks to some age and maturity, I don’t have to be that scared kid anymore and not ask what I want.

While signing up a new multiple employer plan up with a pretty good third-party administrator (TPA), I asked whether I could work with a certain automatic rollover provider that I’m fond of. I was told by the TPA that they were fully integrated with another provider so that it was impossible. I pushed back, saying I liked this automatic rollover provider and that it was a better product for the participant and the advisor of the plan. Needless to say, the TPA said they were willing to use the other provider. I knew they would because it’s not like a TPA is making any money off any automatic rollover provider. You can ask and they may say no, but they’re likely to say yes if it’s not going to affect their bottom line.

People aren’t mind readers, if there is something you have in mind with another plan provider, ask them to consider what you want. Otherwise, you’ll never know whether you could have gotten what you wanted.