The Rosenbaum Law Firm P.C. Blog

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

After 23 years in the retirement plan business, one thing that stands out is that plan providers are on the cutting edge are usually over the edge.

ROB 401(k) plan, sub-trusts in defined benefit plans, defined benefit plans with age 35 retirement age, these are gimmicks that have gotten a lot of unwitting plan sponsors in trouble. I just had a lengthy examination concerning the use of insurance sub-trusts in defined benefit plans as this has been an issue for the Internal revenue Service for the last 15 years.

I would be cautious in any cutting-edge retirement changes without clearing it with ERISA counsel.

With the market up, it makes sense that self-directed brokerage accounts in defined contribution plans would be up too.

According to Charles Schwab’s SBDA Indicators Report, the average account balance across all participant accounts finished Q2 2021 at $348,183, a nearly 22% increase year-over-year and a 4.3% increase from Q1 2021.

The majority of participant assets were held in stocks (37%). Mutual funds were the second-largest holding at (30%), followed by ETFs (20%), cash (12%), and fixed income (1%).

About 75% of 401(k) plans allowed employees to save money in a Roth account in 2019, but participants aren’t using it.

Only about a quarter of 401(k) investors do so. While many suspect that the amount is low because participants may be mistaken that there are income limits for Roth contributions (like with an IRA), I think so many people can’t afford to give up the tax deferral today by making after-tax contributions. While tax rates may be more down the road, it makes so much sense for younger workers, many of who don’t have high-earning jobs that would allow them to make after-tax contributions.

While there should be no reason for a 401(k) plan not to offer Roth, I still don’t believe that it will ever garner substantial assets.

I’m old enough to remember when a photocopy and Xerox were considered the same. Xerox was a brand like Band-Aid. These days, their luck is far worse, including now an ERISA lawsuit.

Participants of the Xerox Corp. 401(k) Savings Plan have filed an Employee Retirement Income Security Act (ERISA) lawsuit against Xerox Corp., its plan administration committee, and various individual defendants alleging imprudent recordkeeping fees.

The lawsuit claims that Xerox had used its in-house recordkeeper and passed Xerox’s fees on to the plan’s participants. Xerox HR Benefit Services, a wholly-owned subsidiary of Xerox, was hired as the plan’s recordkeeper in 2013, with higher average fees than what the market dictates.

The lawsuit claims that under Xerox HR Benefit Services, recordkeeping expenses in the plan more than doubled from $54 per participant in 2013 to $136 by 2019. Xerox’s recordkeeping business was spun off into Conduent Human Resource Services in 2017, and Conduent was the plan’s recordkeeper until 2021. When you’re a large plan and you are delegating plan services to affiliated companies you have interests in, expect to be sued.

According to the Government Accountability Office (GAO), about 40% of 401(k) plan participants don’t fully understand the fees they are paying.

Even with fee disclosure rules implemented in 2012, 41% of participants incorrectly believe that they pay nothing for their 401(k) plan.

GAO found that 45% of participants are not able to use the information in fee disclosures to determine the cost of their investment fee.

The GAO has recommended that the DOL  should add information to disclosure requirements, like individualized quarterly statements to show the actual cost of the investment fees; fee benchmarks to help participants better gauge if their investment costs are competitive; and investment options’ ticker information, to help participants more easily research and compare their investments.  To this day, I think one of the most glaring problems is the lack of uniformity in disclosures. I always felt that the DOL dropped the ball by not offering suggested language and formats in the fee disclosure.

I’ve said it for a long time. It’s imperative that plan sponsors and plan providers wake up about cybersecurity issues. The recent action by the Securities and Exchange Commission (SEC) is just a harbinger of things to come when the Department of Labor (DOL) finally gets its act going.

The SEC sanctioned 8 firms for their failures in their policies and procedures that resulted in email account takeovers exposing the personal information of thousands of customers and clients at each firm.

The eight firms, which were dinged, are Cetera Advisor Networks LLC, Cetera Investment Services LLC, Cetera Financial Specialists LLC, Cetera Advisors LLC, and Cetera Investment Advisers LLC (collectively, the Cetera Entities); Cambridge Investment Research Inc. and Cambridge Investment Research Advisors Inc. (collectively, Cambridge); and KMS Financial Services Inc. (KMS). Each firm agreed to cease and desist from future violations of the charged provisions, to be censured, and to pay a penalty.

The SEC claimed that each of the firms violated Rule 30(a) of Regulation S-P, also known as the Safeguards Rule, which is designed to protect confidential customer information. The SEC’s order against the Cetera Entities also finds that Cetera Advisors LLC and Cetera Investment Advisers LLC violated Section 206(4) of the Advisers Act and Rule 206(4)-7 in connection with their breach notifications to clients.

More is yet to come.

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

I have been an ERISA attorney for almost 23 years now and it’s gone by pretty quickly. I have worked for a few ERISA attorneys and have seen quite a few out there giving speeches around here and there.

Probably my greatest talent for helping my own practice and the worst talent in working for another law firm has been the ability to connect with my audience. My audience is going to be plan sponsors, third party administrators (TPAs), and financial advisors. My articles, newsletters, and speaking engagements meet the attention span and interest of my audience. When I was working at law firms, that wasn’t going to work out because most law firm partners have a tendency to speak above the level of their clients and other attorneys and that’s because they feel the need to justify their fees and their experience by speaking legalese and jargon.

I bill on a flat fee, I have a low overhead, people hire me because the fees are reasonable, I don’t need to justify my fees. I’ve seen a lot in this industry (and some of it was pretty absurd, so I don’t need to justify my experience.  As a retirement plan provider, don’t confuse your clients with jargon. Spit it out; tell your clients what you do for them and why your service is better than the one being offered across the street.

Throwing jargon and technical speak isn’t going to justify your fees, service, or experience, it’s only going to confuse your clients. Tell them what you do in simple terms, because no matter what, they aren’t going to do your job. Communication is any business is key and the lack of communication often dooms any relationship. Speaking above the level of your clients isn’t communication because there is going to very little comprehension.

No one is denying that the work you do isn’t important, but if you can’t communicate what you to do your client, often they will find another provider that will.

I’ve gone back into collecting sports cards because I need hobbies these days since I’m no longer involved in my synagogue and one of the interesting things I’ve discovered is something called card breaks. A sports card dealer buys a case of cards and sportscard collectors may pick a certain team or player through an auction or outright purchase. For collectors and even investors, this is a cost-effective way of purchasing cards. To promote the trust that everything is on the up and up, these card breaks are broadcast live on YouTube or another website. I’ve used one card dealer because it seems everything is upfront, their costs are low, and they are just nice to work with. Above all, there is trust.

Another dealer/card breaker made the run on all these sports card scammer pages because based on a video of a football card break of his, he substituted a card out. That means he found a very rare print of a card and decided it was too good for one of the customers who was entitled to it. He eventually admitted his error (despite not being honest on what the card might have been) and decided to leave the card-breaking business. Did he have the choice to leave? He didn’t because it’s over for him anyway because no levelheaded card collector would ever trust someone like him again.

As a retirement plan provider, what you do for your plan sponsor client is predicated on trust because you have access to the clients and you may have access to the retirement plan’s assets. Anything you do that questions trust that a plan sponsor may have in you is something that will be catastrophic to your business. I’ve seen many plan providers falter because they lost the trust and faith of their clients. They lost so much business that they had to close their doors. Reputation takes years to build and you can destroy it all in just one moment.