The Rosenbaum Law Firm P.C. Blog

My latest JDSupra.com article can be found here.

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

While state enacting mandatory IRA programs for employers that don’t offer retirement plans seems burdensome, I do support it, just because it increases retirement plan coverage and likely, plan sponsorship, so these employers start offering a plan on their own and avoid the mandatory state IRA.

Pew indicates that data from 5500 forms, suggests that in states that have created what is known as auto-IRAs, employers with plans continue to offer them, and businesses without plans are still adopting new ones at similar or higher rates than before state options were available. Since 2013, before the first state auto-IRA programs were introduced, the percentage of new plans as a share of all employer-sponsored plans increased nationwide from roughly 6% to nearly 8% by 2019.

So while states will require employers to partake in an IRA plan if they don’t offer one, I think it will only spur employers to adopt a plan of their own because of their uneasiness of partaking in any type of government program.

I was an employee once and that’s why I don’t have employees. If I did have employees and they left my employment, I’d like all strings to be cut. Some larger plans disagree.

According to a new Cerulli report, 84% of 401(k) plans sponsors with more than $500 million in assets prefer to keep participant assets in the plan during retirement. The reason is that these plan sponsors believe that increased scale helps them negotiate better prices with asset managers and other providers.

While increased assets are great, dealing with former employees isn’t worth the headache. Providing notices and education to current employees is difficult and just so much work when dealing with former employees. I would recommend that the work in dealing with them isn’t worth the increased assets.

When you hire a financial advisor for your plan, they typically are paid quarterly from plan assets. Yet some so many plan sponsors pay hat quarterly fee and their advisor have been missing in their job, that they should be placed on a milk carton.

If you’re paying for an advisor, you need to make sure they’re doing their job. That means contacting you regularly about changes in the market that may necessitate a change of plan investments, as well as providing education for participants to make informed investment decisions.

If your company is buying the stock or the assets of another company, get an ERISA attorney to review if there is a retirement plan of your target involved. Too many corporate attorneys forget to call in an ERISA expert and think they can handle it on their own and can’t.

I’ve seen too many errors involved in these corporate transactions especially in-stock purchase and the advice is given to terminate the 401(k) plan of the corporate target, without concern to the not-so-famous successor plan rule.

The successor plan rule provides that a 401(k) plan which is terminated cannot distribute participants’ elective deferrals if the employer maintains or establishes a “successor plan” (a.k.a., an alternative defined contribution plan) within a certain period of time following the termination. A similar rule also exists for 403(b) plans. When a 401(k) or a 403(b) plan is terminated, a successor plan would be one that exists at any time during the period beginning on the date of plan termination and ending 12 months after all the assets from the terminated plan are distributed. So that means a terminated 401(k) plan couldn’t be replaced by another 401(k) plan within the waiting period. The same with a terminated 403(b) plan could not be replaced by another 403(b) plan within the waiting period. (However, an employer terminates its 403(b) plan can set up a 401(k) plan with no waiting period if it is otherwise eligible to do so and vice versa.)

If your company is buying the stock or the assets of another company, get an ERISA attorney to review if there is a retirement plan of your target involved. Too many corporate attorneys forget to call in an ERISA expert and think they can handle it on their own and can’t.

I’ve seen too many errors involved in these corporate transactions especially in-stock purchase and the advice is given to terminate the 401(k) plan of the corporate target, without concern to the not-so-famous successor plan rule.

The successor plan rule provides that a 401(k) plan which is terminated cannot distribute participants’ elective deferrals if the employer maintains or establishes a “successor plan” (a.k.a., an alternative defined contribution plan) within a certain period of time following the termination. A similar rule also exists for 403(b) plans. When a 401(k) or a 403(b) plan is terminated, a successor plan would be one that exists at any time during the period beginning on the date of plan termination and ending 12 months after all the assets from the terminated plan are distributed. So that means a terminated 401(k) plan couldn’t be replaced by another 401(k) plan within the waiting period. The same with a terminated 403(b) plan could not be replaced by another 403(b) plan within the waiting period. (However, an employer terminates its 403(b) plan can set up a 401(k) plan with no waiting period if it is otherwise eligible to do so and vice versa.)

I love the idea of a Roth 401(k) and if you could afford to lose the tax deduction of a 401(k) deferral and you have enough of a horizon before you retire.

I just learned that venture capital billionaire Peter Thiel has managed to turn a $2,000 initial investment into a $5 billion fortune inside of a Roth IRA. You may not be able to do that, but with tax rates likely to increase over time, it may make sense to make all or a portion of your 401(k) deferrals as an after-tax play. If you can afford to lose that deduction.

It happens all the time, an unmarried plan participant signs up for a retirement plan and designates their parents and/or siblings as their beneficiaries. They subsequently get married, have children, and never bother to update their beneficiary forms. They die and it becomes a huge mess, whether the plan is covered under ERISA or not.

So to avoid a mess, make sure that all participants for your plan are advised that it may be a good time to update their beneficiary forms or designate someone as a plan beneficiary if they haven’t done before.

The pandemic is over, at least for now. Assuming the Delta variant doesn’t increase infections and cause the mask and social distancing back up, I still think that the pandemic will cause some changes in the business that will be permanent.

1) Less in-person meetings. Zoom works, it saves on travel time and time. Expect more and more client meetings and enrollment meetings to be permanent Zoom/Microsoft Teams/Google Meet meetings.

2) Less travel to national conferences. Less might be more, in terms of saving travel time and expenses.

3) More work from home. Unlike in the 1990s, people can effectively work from home.

4) Cut back in space. Many plan providers will shrink their office footprint if they allow more people to work from home.

5) Move to the country. With less space, less need to be in the big city. Savings on rental in space size, but location.