The Rosenbaum Law Firm P.C. Blog

The beauty of being in the retirement plan business since 1998 is that I love what I do and I can also remember the technological breakthroughs that allow the industry to provide a better service at a better price. The days of paper and telephone changes of investment allows participants a quick and better control of their retirement assets. Yet there is a price to pay. The price to pay is now being concerned with cybercriminals because stealing assets when distributions are done online is far easier when it was done by pen and paper.

In the United States, we have $6.3 trillion in retirement plan assets. Just a fraction is a huge take for any cybercriminal, whether it’s here or outside the United States.

Whether you’re a plan provider or plan sponsor, you need to be up on this or you’re the next victim.

If you’re a large plan sponsor, who also happens to offer your proprietary mutual funds in a 401(k) plan, you’re a mark for a lawsuit. Sometimes, twice. Transamerica has settled another lawsuit brought by participants who had alleged a breach of fiduciary duty in retaining proprietary funds in its own 401(k).

Transamerica will fork over $5 million in this lawsuit, five years after they forked over a $3.8 million settlement in another lawsuit raising similar allegations—although this suit distinguished its issues from this one.

This latest case also requires, during a three-year compliance period, that “Defendants continue to provide fiduciary training to the Trustees of the Plan and continue to retain an unaffiliated investment consultant to provide independent investment consulting services to the Trustees.”

A few years back, I was representing a plan sponsor under a Department of Labor (DOL) audit for very frequent late deferral deposits. They were asking questions regarding an investment policy statement as well as the selection of the fiduciary advisor and these were questions that they never asked before. Thankfully, I was prepared.

With a focus on cybersecurity, it can come as no shock that DOL auditors have been asking about it. The DOL auditors on audit, have been asking plan fiduciaries to produce “all cybersecurity and information security program policies, procedures and guidelines that relate to the plan, whether applied by the plan sponsor or by a vendor, as well as detailed documentation evidencing specific actions taken by the plan’s fiduciaries and vendors.”

What does that mean? It means you need to know the answers and ask your plan providers about cybersecurity.

I hate death, I hate talking about death, the whole point of living is not dying. Yet, when it comes to setting things rights, I’ve done the best I can in terms of drafting a will and keep beneficiary forms up to date.

As an ERISA attorney, I’ve seen too many fights, too many skirmishes and too many children hurt, just because someone passed away and didn’t set the beneficiaries right. Nothing stays the same forever, subsequent marriages and children can change everything.

Money changes everything and the people you originally intended to leave it for, may not share with the people you now intend to leave it for. That’s why that you should set things right, by keeping your beneficiary forms updated.

Years ago, I started working and had a lot of free time (before marriage and kids). I saw that the local gym offered a free month gym membership. Being a naïve 26 year old, I went to the gym. From the moment, I was there, it was a hard sell to sell m a gym membership. That free month was just a sales pitch, there was nothing free about it.

You will see plan providers offer you a free service for a period of time. Is hiring a 3(16) fiduciary for a free six-month trial a good enough reason to hire them? No. It isn’t free as that free service is baked into the overall fee and this isn’t the same as buying a set of encyclopedias on a trial basis.

There are many reasons to hire a plan provider. Them offering a free trial period isn’t one of them.

More than 16 million accounts of $5,000 or less — $8.5 billion in the aggregate — were left in workplace plans from 2004 through 2013. That is part of the reason that the DOL believes that dealing with the missing participant problem is needed.

So if the DOL says it’s a big deal, it’s a big deal to you. Develop a procedure in dealing with former employees who leave their money in your 401(k) plan. If mail is returned, find them. Invest in a good Internet search firm and locate these former employees. It’s your fiduciary duty to provide them with required notices and information. Don’t wait until the plan terminates, to locate them.

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

I always say that the reason I don’t have employees is I was once an employee too. I was never totally happy with pay and benefits and I don’t know if I ever could be totally satisfied where I worked. I was a good employee, but a worse former employee. As a 401(k) plan sponsor, it’s the former employee who will complain the most. 

A former employee of Generac Power Systems who was terminated in May is now part of a class-action lawsuit filed against them for excessive fees. While You may say that it won’t happen to you because your plan is small, I’ve represented so many plan sponsors that were under a Department of Labor investigation because of a complaint by a former employee. If you’re running a plan that isn’t totally on board, it will be the former employee who will sink you.

A plan with 100 or more participants requires an audit of a plan’s financial standing conducted by an independent qualified public accountant to be submitted along with Form 5500.

One of the well-known secrets over the past 10 years is that the Department of Labor (DOL) is concerned about the quality of audits prepared by certified public accountants. One way they have been doing that is by doing random audits of audits. They will send a letter to a Certified Public Accounting firm with a bunch of requests for documents to ensure that the audit was proper including the engagement letter and work papers.

The audit of the audit is part of the business and I got a little upset when a CPA firm forwarded one of these DOL letters to a plan I work on and cited that per the audit contract, they were entitled to be paid for the work involved. I protested because it’s dealing with the quality of the audit and that should be the cost of the CPA doing business, just like the times I’ve had to answer about the legal opinions I’ve made.

Attorneys have a bad reputation and a lot of times, it’s warranted. I jokingly said I knew why people hated lawyers just by going to law school.

While people may have disdain for lawyers, they serve a purpose and that purpose shows best when a retirement plan gets audited. ERISA attorneys work well with government auditors because they provide the information that is asked, they don’t volunteer information that plan sponsors unfortunately do. The audit process isn’t a picnic, it’s a tool that the government uses to ensure voluntary compliance with the Internal Revenue Code and/or ERISA.  So bringing in an attorney won’t make the process to be adversarial, it already has been built in as being adversarial.

I’ve seen plan sponsors make an audit worse for themselves, by handling it on their own. Plan sponsors aren’t sophisticated enough in retirement plan law to handle things themselves. It’s best to hire a professional to do that.