The Rosenbaum Law Firm P.C. Blog

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A 401(k) plan doesn’t have to be treated like the Bible or any other type of book where every work is analyzed and studied. It can be open and not be as decisive. I believe. The best flexibility for plan sponsors and their providers is opportunities where things are open-ended by being discretionary.

One of the many foul-ups is the stated match formula. There is no reason for that. A plan document needs to have a stated match formula when a discretionary one will do. A matching provision that doesn’t tie the hands of a plan sponsor goes a long way to accomplishing the same goals as a stated match without the drama of having to fix things when the plan sponsor has to amend the stated match when financially, things go south. A stated matching provision ties the hands of plan sponsors when it doesn’t need to and it keeps options open that are closed when a stated match is in the plan.

As a plan participant, I would have liked a matching contribution every time I deferred, but as an ERISA attorney, I like companies that have a flexible discretionary match that could give them the opportunity for the plan sponsor to match at year-end.

In terms of issues over retirement plans for the past 22 years, the two most treacherous investigations that I went through with the Department of Labor (DOL) over the plans sponsored by clients, simply started by a complaint by a former employee.

The smallest issue can be blown out of proportion because an aggrieved former employee just wants to stick it to their former employer. Something as simple as screwing up the mechanism of distributing money to these former employees can lead to a DOL complaint. Former employees are far more likely to complain than current employees because they have nothing to lose.

That’s why it’s important for the plan sponsor to tread carefully in all aspects of plan administration when dealing with former employees.

Over the 30 years of investing, I have seen nothing like my investment in bitcoin and other digital currencies. There have been swings of more than 10% a day and I’m up over 100% since first starting investing this summer.

Yet, what might be great as an individual investment would not make sense as a participant-directed 401(k) investment. If private equity/hedge funds aren’t a truly proper 401(k) investment, don’t expect Bitcoin and other forms of digital currency as 401(k) investments as long as they’re volatile and unregulated.

The Department of Labor (DOL) released its 2020 enforcement fact sheet, showing the work they did for retirement plans and plan participants. The DOL recovered over $3.1 billion in direct payments to plans, participants, and beneficiaries. 

The DOL’s Employee Benefits Security Administration (EBSA) conducted 1,122 civil investigations, 754 of which (67%) resulted in monetary results for plans or other corrective action. 

EBSA closed 230 criminal investigations, which led to 59 guilty pleas or convictions and the indictment of 70 persons (including plan officials, corporate officers, and service providers) for crimes related to employee benefit plans.

Despite the concerns that the Trump administration implemented Department of Labor (DOL) regulations that hampered the use of environmental, social, and governance (ESG) investments, I still don’t think that it’s a big deal because ESG funds haven’t caught on completely with retirement plans.

A survey by PGIM found that about one-quarter (24%) of plan sponsors indicate they have taken action to incorporate ESG investments into their plan over the past three years, while more than half (52%) said they have not. An additional 23% were neutral on the matter.

Even though Pooled Employer Plans were made effective on January 1, 2021, the Department of Labor (DOL) has issued final regulations on registration requirements for pooled plan providers (PPP) administering PEPs.

A PPP is required to make an initial registration filing 30 days before beginning operations. However, registration filings made before February 1, 2021, are not required to be submitted 30 days in advance; instead, these filings are only required to be made as soon as possible.

Content requirements for an initial filing include:

• Legal business name and any trade name (DBA);
• Federal EIN;
• Business phone and mailing address;
• Website address of public sites used to market PPPs or provide information on PEPs;
• Name, address, phone, and email of the designated compliance officer of the PPP;
• The name and address of the agent for service of legal process for the PPP;
• The approximate date when the PPP plans to begin operations;
• A description of the administrative, investment, and fiduciary services that will be offered or provided in connection with the PEPs, including a description of the role of any affiliates in such services;
• A statement disclosing any ongoing federal or state criminal proceeding, or any federal or state criminal convictions, related to the provisions of services to, operation of, or investments of, any employee benefit plan against the PPP, or any officer, director, or employee of a PPP, provided that disclosure of any criminal conviction may be omitted if the conviction, or related term of imprisonment served, is outside 10 years of the date of the registration; and
• A statement disclosing any ongoing civil or administrative proceedings in any court or administrative tribunal by the federal or state government or other regulatory authority against the PPP, or any officer, or director, or employee of the PPP, involving a claim or fraud or dishonesty concerning any employee benefit plan, or involving the mismanagement of plan assets.

A PPP must submit a supplemental filing for each PEP they will run, that includes the name of the PEP and identification information for the primary compliance officer. A supplemental filing is also required within the later of 30 days after the calendar quarter in which the reportable event occurred or 45 days after the event if there is:

• Any change to the information in the initial registration filing;
• A significant change to the PPP’s corporate or business structure;
• A written notice of an administrative enforcement action related to an employee benefit plan received by the PPP;
• A legal finding of fraud or dishonesty by a court or agency; or
• A notice of any criminal charges against the PPP or any of its directors, officers, or employees related to an employee benefit plan.

Once a PPP has stopped operating all of their PEPs, they would have to make a final filing. The deadline for final filings will be the later of 30 days after the calendar quarter in which the final Form 5500 is filed for the last PEP operated by the PPP, or 45 days after that filing.

All PPP registrations must be filed electronically via the DOL’s Form 5500 filing system using the new EBSA Form PR.

For further questions about PEPs and PPPs, contact me

Having a great 401(k) plan doesn’t mean that a former participant won’t sue you or the government won’t audit you. The reason is that you have no control over what other people may do.

The best defense isn’t a great offense. The best defense is developing fundamental fiduciary procedures and following them. Review fees, reviewing investments, and implementing prudent policies and following them is what you need to do.

I once worked at a third-party administrator (TPA) that I joked that if you wanted to hide something from one of our plan administrators, you should put it in the plan document file (based on a Chris Rock joke).

It’s amazing how plan providers and their plan sponsor clients don’t know what’s in the plan document and that’s even when the plan has an index (as my Relius documents have). Taking a look at the terms of the plan document and matching up with what’s being done with the plan, goes a long way in curbing the potential of administrative errors. It’s a tedious process, but something that even if done annually, can avoid a lot of headaches later.