The Rosenbaum Law Firm P.C. Blog

People know that I love crypto investing, but hate it as a potential 401(k) investment for almost all plan participants.

Providers will offer it within a small self-directed. A brokerage-like window with minimum exposure. I believe For Us All is offering a 5% crypto window for employers that want to add that self-directed window for participants. This isn’t putting lipstick on a pig, that is a window that minimizes losses for participants and limits liability for the plan sponsor that will offer it. Until it’s regulated, you won’t see Bitcoin or any other type of crypto investment on a 401(k) fund menu anytime soon.

The Delinquent Filer Voluntary Compliance Program (DFVCP) is a Department of Labor (DOL) program designed to encourage voluntary compliance with ERISA’s 5500 program. It’s great as a plan sponsor if you forget to file a Form 5500 and pay thousands instead of tens or hundreds of thousands in penalties. 

The problem I’ve found with the DFVCP is plan sponsors going through the process and fling the delinquent 5500s yet forgetting the DVCP online application and payment of the program fee. By forgetting the fee and online submission, you would subject yourself to the penalties that the government may lay on you, regardless of your original intent to apply through the DFVCP.

Lowe’s Cos. settled a class-action lawsuit filed by a participant in its 401(k) plan for a $12.5 million settlement fund from which participant class members are entitled to distributions. 

The class-action lawsuit alleged that Lowe’s, its administrative committee, and investment consultant AON breached their fiduciary duty by offering the AON Growth Fund. No settlement has been reached yet with co-defendant Aon.

Aon was accused of a conflict of interest in recommending this proprietary fund for the plan and improperly did so to further its financial interests instead of the interests of the plan’s participants.

Proprietary funds are a minefield for any large 401(k) plan.

When you operate proprietary mutual funds and offer them in your401(k) plan, you will be a target of ERISA litigators. John Hancock agreed to a $14 million settlement in a lawsuit filed by participants in a company 401(k) plan who alleged ERISA violations in the plan’s management which had $1.85 billion in assets in 2019.

Under the agreement, the insurer will contribute $14 million to a qualified settlement fund, and participant class members’ accounts will be credited with their share of that fund.

As part of the settlement, John Hancock will hire a third-party investment consultant to provide ongoing monitoring and review of the investment options for at least five years from the settlement effective date.

My latest article for JDSupra.com can be found 1.

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

When it comes to retirement plans, we have a snowball effect. The effect is usually when the plan sponsor has a plan problem and decides to either try to fix it on their own or lean on legal counsel with absolutely no training in ERISA.

I have seen too many plan sponsors pay tons of penalties and excise tax to correct problems that could have cost them a lot less if they were represented by ERISA counsel.

I remember being contacted a few years ago by a financial advisor whose client’s plan was disqualified by the Internal Revenue Service and was asked if I could represent them in negotiating down any other Internal Revenue Service penalties. I told the advisor I should have been called a lot earlier because the transgression shouldn’t have led to the plan being disqualified if they had some decent ERISA counsel.

Too many plan sponsors think they can handle an audit or inquiry or investigation on their own and they’re wrong unless they are a third-party administrator or ERISA counsel.

In the past, I have been able to negotiate penalties down for failures to file Form 5500 on time when plan sponsors not represented by counsel have paid through the nose in penalties. Too often plan sponsors are so more interested in saving on legal fees, that they end up cutting their nose to spite their face by paying more in penalties.

ERISA counsel has the experience to handle the government and I have found deference by IRS and DOL auditors in dealing with professionals who understand the ramifications of the situation, which often leads to a better resolution.

Using counsel who has no ERISA experience is a mistake as well, like hiring a dentist to do a colonoscopy. ERISA is a different animal than what most attorneys handle and I have found there is no room for lawyers who want to dabble in ERISA because it’s not something you can dabble in.

Once a plan sponsor gets that initial inquiry, they need to contact ERISA counsel and their TPA to draft an action plan on how to handle it because often the IRS and the DOL may use an audit to investigate a major complaint. Having a lack of experience in handling a governmental audit can make things so much worse.

When a plan terminates and distributes all its assets or merges all its assets into another plan, you need to understand that a Final Form 5500 needs to be completed. Otherwise, you will get notified by the Internal Revenue Service or Department of Labor that a Form 5500 is missing.

This happens a lot when your plan merges into a multiple employer plan, pooled employer plan, or a successor plan. Make sure a Final 5500 is done because the government will insist you get one done.

Part of my job is fixing errors made by plan sponsors and their plan providers. Despite what the top payroll providers who also serve as third-party administrators (TPA) may say, a good part of that job is fixing the errors they create, once one of their clients leave for a better TPA.

A new client is a plan sponsor with a new TPA and an old Form 5500 problem from 3 years ago. It seems the payroll provider improperly included employees who were excluded from participation in the 401(k) plan because they were union employees. The problem is that including these union employees put the plan over the 120-participant limit that would trigger a plan audit being required for Form 5500 (the 80-120 rule). The biggest problem is that the plan sponsors were never told of this independent audit requirement. The client filed Form 5500 without the audit and the government treats that as never filing a Form 5500 for that year where an audit was required. The client got a letter from the Internal Revenue Service with a $120,000 penalty.

This isn’t supposed to happen, I assure you. Yet it does. That is why it’s important to hire a quality TPA.

I work from home, it’s 11 years now. You can say that I was ahead of the game with the COVID pandemic.

As the pandemic nears its end, the business will get back to normal. The problem is that with so many people working from. home, a lot of them will get called back to the office. As you call people back to the office, have a little empathy because I guarantee that several of your staff will feel a little uneasy about coming back to the office.

Just food for thought.