The Rosenbaum Law Firm P.C. Blog

The Department of Labor (DOL) issued guidance that reinforces that the new investment advice regulation in retirement accounts will strengthen oversight of rollover recommendations and require investment advisers to mitigate conflicts of interest.

The regulation that the Biden administration let stand that the Trump administration issued, provides exemptions under ERISA that allow fiduciaries to receive compensation for advice that would otherwise be prohibited, such as third-party payments, as long as they act in a retirement savers’ best interests.

The DOL in the guidance said that a recommendation to roll over retirement funds from a retirement plan to an IRA can be part of an ongoing client-advisor relationship and trigger a fiduciary standard of care.

The new rule does leave in the five-part fiduciary test that allows wiggle room for financial advisers to get around a fiduciary obligation. However, the DOL stated that will be monitoring rollovers for potential investor harm.

The DOL guidance also stated how retirement-plan advisers should handle potential conflicts of interest that would put the advisers’ interests ahead of those of the client. The DOL opines that financial firms should not use quotas, bonuses, prizes, or performance standards as incentives and tells them to avoid compensation practices that encourage conflicts.

The Department of Labor (DOL) has issued guidance for plan sponsors and plan providers that cover best practices for them for maintaining cybersecurity.

This guidance comes pretty quickly after the Government Accountability Office (GAO) asked the DOL to guide everyone on the growing issue of cybersecurity. Thanks to the sophistication of cybercriminals and some recent cases of cyberthreat, the guidance has come at a time of need for guidance.

The DOL provided three forms to provide guidance on cybersecurity.

1). Tips for Hiring a Service Provider: Provides guidance to plan sponsors and fiduciaries to prudently select a service provider with strong cybersecurity practices.

2) Cybersecurity Program Best Practices: Assists plan fiduciaries and record-keepers in their responsibilities to manage cybersecurity risks.

3) Online Security Tips: Provides guidance to plan participants and beneficiaries who check their retirement accounts some basic online rules to reduce the risk of fraud and loss.

There is a growing problem that I’ve seen dealing with plan providers (usually third party administrators (TPAs) who get paid for an entire plan year’s work, get terminated and refuse to complete the end of the year work because that work takes place in the next plan year (where they are no longer the plan’s provider).

A perfect example is what happened with a TPA I worked with on a multiple employer plan. The TPA was paid through February 28, 2021. The contract referenced annual work and fee which includes a Form 5500 and valuation. The TPA refused to do the 2020 Form 5500 valuation because that work would be done in July or October 2021 and wanted a fee so exorbitant to complete, you’d laugh. Just found the same issue with a client of a client where the ERISA fiduciary paid for the entire year doesn’t want to do one simple task they were paid for because they no longer serve as a plan fiduciary.

I believe that if your promise annual work and get paid for the year, it doesn’t matter that you’re no longer the provider, you need to complete the work you were contracted for and paid for. I believe this is a bigger problem than anyone wants to admit and an industry heavyweight says that most billing disputes involve this topic.

I’m always fascinated by the history of dying organizations because I’ve been surrounded by them. Whether it’s a law firm, a synagogue, or a wrestling territory, they all have the same problems.

The major problem is that they’re set in their ways even when their ways haven’t been working for a long time. When they’re dying, they will continue the same path that has led them to their situation because there isn’t anyone there willing to do things differently or try something new.

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

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

Being a plan sponsor is a tough job and the amount of paperwork that goes with it can be overwhelming. The paperwork includes plan documents, summary plan descriptions, amendment, valuations, trusts statements, and payroll.

The fact is that as a plan fiduciary, plan sponsors need to keep good records. It’s important to have correct records when you need to pay former plan participants out, but they need to protect themselves. I have seen too many plan sponsors get into trouble with plan compliance or audits by the Internal Revenue Service or Labor Department because they no longer have copies of the documents they once had.

While spaces for document file cabinets are usually at a minimum, there is a friend out there that can help you avoid losing necessary plan documents and that’s a scanner.

Saving all the necessary plan documents and valuation reports through scanning them as a pdf can help plan sponsors avoid losing documents and save on the need for space of filing cabinets. While plan sponsors should maintain original copies of all plan documents, they can scan the rest. A good scanner won’t set you back and plan sponsors probably have that option with their copier.

Plan sponsors should scan all their plan files as they come in and label them in any easy to understood manner. Creating specific directories on the network for specific plan years is also a great way to keep these things organized.

With January 1st past us, we knew that many plan providers were going to launch Pooled Employer Plans (PEPs). I know, because I helped launch four and still in the process of converting two multiple employer plans (MEPs) into PEPs.

The media loves a good story and a good story is the promulgation of many PEPs. I will say from experience, it’s been a long process because to steal a crass line from one of the Naked Gun movies, we have had to feel our way around a new system that had very little guidance. So many providers were ill-prepared with a launch because the guidance from the Department of Labor was a little late and underwhelming. So while people are creating PEPs,  are they gathering any assets? Everything seems a little slow and I will be surprised that there are any PEPs achieving any large size in 2021 unless it’s a conversion from a MEP.

Fidelity won a huge case.

Schlichter, Bogard & Denton brought a lawsuit on behalf of four participants in Shell Oil Co.’s 401(k) plan. While the case focused on excessive fees, it alleged that the use of participant data by Fidelity, the recordkeeper to solicit non-plan-related services was wrong. The complaint alleged that Shell and Fidelity caused the Plan to engage in transactions that constituted a plan asset.

U.S. District Judge Jeffery Vincent Brown of the District Court for the Southern District of Texas, Galveston Division granted Fidelity’s motion to dismiss those claims.

The Judge threw out the participant data as plan records because regulations promulgated under ERISA don’t consider participant data as a plan asset. Also, the complaint tried to imply that Fidelity was a fiduciary and they certainly weren’t.

Expect more litigation from a federal district court near you.

When I first started out, I worked as an attorney affiliated with a third-party administration (TPA). The problem with this TPA that it had 4 main partners and two other employees who had small ownership interests; it was a tribe with two many chiefs. Another problem is that they could never keep order in their daily 401(k) administration practice.

It seemed that every 6 months, there was a new method in running that area. It was either a new person in charge, a change in the delineation of duties, or some other change. One change where the person in charge of administrators was made the head of the daily 401(k) operation caused the entire compliance staff to quit. That person placed in charge was no-nonsense and his authority was curtailed by the chiefs when he was forced to report to someone else.

The TPA never kept to its plans, it always changed them without giving one a shot. At one point, one of the chiefs (still a chief even though they sold the business to a national conglomerate) said that if the new plan didn’t work, he’d fire himself. It didn’t work out and Dan didn’t keep to his promise. It was only near the end when the entire business was going to close as the entire block of business was sold off that things were starting to run well.

Any plan that you have in reshaping your business has to take time and it has to be the right plan. Changing plans all the time without giving time for one to work isn’t the way to run a business. It’s like the old Soviet Union who every 3 years, came up with a new 5-year plan.