The Rosenbaum Law Firm P.C. Blog

It’s more work, but it’s clear that the Department of Labor (DOL) wants you to do more work when dealing with former participants who you lose track of, but still have money in your 401(k) plan.

It’s important that you develop a process to identify missing participants and to find them. Use online searches to locate missing participants through free tools or pay for one of those inexpensive people searches.

You need to put plan policies and procedures in writing to ensure clear, consistent practices. and document the decisions, steps, and actions you have taken to implement the policies. The reason you have to is that the DOL is asking plan sponsors now about their missing participant procedure and it won’t look right if you don’t have an answer.

Witnesses testifying before the ERISA Advisory Council criticized the idea for additional fiduciary or disclosure obligations on 401(k) plans that contain brokerage windows. Of course, the witnesses had a bias since many of them offer it in their plan.

During the two-day hearing, witnesses representing private employers, law firms, and 401(k) industry groups claimed that participants who use self-directed brokerage windows are sophisticated investors familiar with the risks and that existing disclosures already inform participants. They also claim that any new fiduciary obligations might cause plans to cease offering brokerage windows.

I have never been a fan of self-directed brokerage windows, but I believe that there should be additional guidance to properly protect plan sponsors who offer these self-directed brokerage windows and I think we won’t get that guidance until a plan sponsor ends up getting sued.

A survey by JP Morgan Asset Management shows that even though about four in five respondents didn’t change their contributions or investments during the COVID-19 pandemic, more than half feel say they’re overloaded with information and don’t know how to start planning for retirement.

The survey indicates about 62 percent of participants wish they could just push a button and completely hand over retirement planning.

Several other key trends emerged in the study: 1) Participants think they should be saving more than they are; 2) Participants’ favorable/neutral views of auto-enrollment continues to rise, climbing to 87% this year. Four in 10 survey respondents were automatically enrolled into their current plan;  3) About 90 percent identify retirement benefits as an important factor when deciding to stay with their current employers or consider a new employment opportunity; and 4) about 70% believe that their employer has a responsibility to help employees with their financial wellness.

The U.S. Securities and Exchange Commission (SEC) announced that TIAA-CREF Individual & Institutional Services LLC, (TC Services) that is a subsidiary of Teachers Insurance and Annuity Association of America (TIAA), will pay $97 million to settle charges of making inaccurate and misleading statements to rollover clients.

The settlement also covers allegations that the firm failed to adequately disclose conflicts of interest to thousands of participants in TIAA record kept employer-sponsored retirement plans.

According to the investigation, customers were pressured by TIAA advisers to move their investments from low-cost, employer-sponsored retirement plans to higher-cost, individually managed accounts. The individual advisory program offered was significantly more expensive than the employer-sponsored plans.

The SEC also said that TIAA’s sales representatives presented clients with a “biased and misleading comparison” of their investment options, promoting managed accounts as the only alternative to self-directed investments while downplaying the benefits of keeping their money in employer-sponsored plans.

When you’re a plan provider, you must tread carefully and it’s clear that TIAA didn’t.

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With a cautious stock market still reeling from COVID, it should come as no shock that trading within 401(k) accounts is low.

Trading activity in 401(k) retirement plan accounts was “remarkably light” in the second quarter of 2021, according to data compiled by Alight Solutions.

Net trades for the quarter only amounted to 0.16% of balances, which they claim is the lowest quarterly figure in the almost 25 years that the company has been tracking the figures. For the past 23 years, trading activity averaged 0.88% of balances.

With so many people out of work and trepidation on whether the pandemic will continue, this is not surprising.

It sounds so great on paper because you read an article. An advisor clued me into an about a Mega Backdoor Roth IRA, utilizing a 401(k) plan and a little-used provision called the Voluntary Contribution provision that could potentially allow highly compensated employees to put in after-tax contributions in excess of any Roth 401(k) contributions.

The only problem is that almost all plans don’t allow and any voluntary contribution must be used with the plan’s matching contribution compliance testing called the ACP test and if the plan’s not a safe harbor 401(k), chances are that voluntary contributions would make the ACP fail. That detail was missing from the article.

So when you read an article with tax advice, talk to a tax expert to make sure it’s right.

A target-date fund (TDF) could be an attractive investment alternative for a participant that can’t be bothered with allocating their account balance.

The reason I have trepidation about target-date funds is because of how certain participants use it, as well as the financial advisors that don’t have a word with these participants.

According to data from Vanguard, 27% of use TDFs along with other 401(k) mutual funds. Another 2% use more than one target-date fund; 4% use two or more TDFs as well as other funds. So about a 1/3rd of participants are using TDFs incorrectly and plan providers and plan sponsors are ignoring this big fact.

Outstanding loan rates for 401(k) participants is an interesting thing to look at, it may be a sense of the strength of 401(k) participation.

At the end of the first quarter of 2021, about 14% of 401(k) participants had outstanding loans. The percentage fell steadily throughout last year after edging up to 16.3% in the year-ago period from 16.1% in the fourth quarter of 2019.

The loan rate was over 18%  during the Great Recession of 2008-2010. I wonder whether CARES Act distributions thanks to the COVID pandemic may have something to do with that shrinking amount.

With a networking event planned, I thought it would be a good time to get back into some of the local networking groups to promote it, and quickly, I remembered why I stopped.

One of the meeting groups is someone that I’m friends with and respect. He runs a weekly event, that has been done on a Zoom call since. The Zoom calls create a small conference room where 4-5 business people talk for a few minutes and then get switched around to other rooms. So in one of the rooms, I meet someone who is in the business of selling products with your logo to potential clients. Rather than trying to network with me, he immediately tells me that one of the logos in my virtual background would look great on one of his products. I know when you’re selling, you want to sell. The point is I want to network and plug my event, I think giving stuff away for free makes no sense when I don’t meet most of my clients live.

In my mind, the point of networking is meeting people and try to find out how to help me, not to sell people products directly. People know what I do and if I do, I tell them. If they know of people that could use my help, they will remember it. I just think the slick sales pitch way upfront is just cheesy and I just squirm. Don’t be that guy.