The Rosenbaum Law Firm P.C. Blog

There have been some critical op-eds of late, criticizing 401(k) plans. Some of the criticism wasn’t warranted as the writer seemed to get things wrong on cost.

I don’t really pay attention to criticism, whether it’s warranted or not. For someone misinformed about how 401(k) plans cost or how the industry acts, I don’t get too agitated and call a critic, a hater. The reason is that no matter how misinformed an opinion might be, I’m a little sensitive as I’ve been called a hater a few times in my life, just by offering constructive criticism. It’s usually outside 401(k) plans, but I have a problem with just labeling anyone a hater even if they completely missed the boat with their opinion.

Many years ago, I was one of the people on LinkedIn (along with James Holland) that would point out the issues regarding 401(k) plans that needed to be addressed: the need of fee disclosure and the problems with revenue sharing. Industry leaders didn’t take too kindly to the criticism and I think history has vindicated us.

These days, there are always writers with little knowledge of 401(k) plans, that takes potshots at the industry. I just don’t get riled up because opinions are opinions, even if they’re based on missing facts. The 401(k) industry can always be better and we should never lose the demand that it gets better. Like with folks on Facebook, I just don’t get riled up about any 401(k) industry criticism, whether its warranted or not. Maybe I’m getting older, but the industry has improved itself over the last 10 years and it’s the criticism back then, that helped it.

Unlike the safe harbor non-elective contribution, you still need notice and you still need one in place if you want one for 2021 by December 1.

While non-elective safe harbor formulas no longer need notice and no longer need to be in place until during or even after the plan years are over, the changes made by the SECURE Act are not applicable for safe harbor matching contributions. The reason why is safe harbor match is tied to deferrals and participants should have a right to decide if and how much they are willing to defer, to benefit from the safe harbor match.

Unlike the safe harbor non-elective contribution, you still need notice and you still need one in place if you want one for 2021 by December 1.

While non-elective safe harbor formulas no longer need notice and no longer need to be in place until during or even after the plan years are over, the changes made by the SECURE Act are not applicable for safe harbor matching contributions. The reason why is safe harbor match is tied to deferrals and participants should have a right to decide if and how much they are willing to defer, to benefit from the safe harbor match.

Nestle is the latest target of ERISA litigators and is being sued 0ver excessive administrative fees.

The Nestle Plan has more than 39,000 participants and approximately $4.2 billion in assets.

The complaint in the suit alleges that the plan’s expenses equal to $60 a head, about double what should be charged for a plan of that size. The lawsuit also attacks the use of managed accounts, but the complaint cites a lack of actual knowledge on specifics concerning the plan’s decision-making process.

We will see how it plays out.

Insperity and Reliance Trust has settled a lawsuit for $39.8 million, alleging that they breached their fiduciary duties and committed prohibited transactions under the Employee Retirement Income Security Act (ERISA) relating to the management, operation, and administration of the Insperity 401(k) plan.

Insperity, a professional employer organization (PEO), offers a 401(k) plan to employees of small and medium-sized businesses. Insperity retained Reliance Trust as a discretionary trustee to hold, manage, and control the assets of the plan and to be responsible for selecting, retaining, and monitoring investment options available to participants.

The plaintiffs alleged that the defendants selected untested proprietary funds as investment options for the plan and retained those funds despite their poor performance, which benefited defendants at the expense of participants. It was alleged that because Insperity Retirement Services, a subsidiary of Insperity, served as the plan’s recordkeeper, there was a prohibited transaction where excess fees were paid.

At the heart of everything in the 401(k) plan business, politics does play a part.

Environmental, social, and governance (ESG) funds are all the talk of the business because of a proposal set forth by the President Trump led Department of Labor (DOL).

The DOL has proposed a rule that would limit the ability of retirement plans to include investment funds or strategies that integrate ESG factors into their investment process.

The DOL talks about the need for picking funds on performance, rather than ESG principles. Plan providers and plan sponsors are calling foul, but as the Joker in The Dark Knight said: “why so serious?”

If Trump is re-elected and the proposal becomes a final rule, the change is negligible. ESG funds are hard to find in defined-contribution plan lineups. Only about 4.5% of plans had at least one sustainable fund, and they made up, on average, 0.17% of a plan’s offerings. Why the outrage? It’s just politics on one side or the other.

When your plan is big enough, you will be a target of the ERISA litigators.

Human resources outsourcing firm TriNet is the latest target of ERISA litigation.

As a professional employer organization, TriNet provides MEPs to its clients. The TriNet 401(k) includes more than $2.9 billion in assets among more than 162,000 plan participants as of the end of 2018.

The complaint alleged that TriNet breached its fiduciary duty to participants by selecting mutual funds for the plans’ investment menus that had higher fees than others available. The plaintiffs also argue that investment management fees were higher than necessary because the plan didn’t include passively managed funds for several asset classes and didn’t include the lowest-cost share class available.

The complaint also alleged that the Plan had higher-than-necessary record-keeping fees. Participants in the larger MEP paid about $100 annually for administrative costs between 2014 and 2018, while those in the smaller MEP paid $329 in 2014 and $147 in 2018, according to the lawsuit. A comparable average for similarly sized plans is about $35 per year, per the lawsuit complaint.

Smart, a United Kingdom and global recordkeeper, has announced it will make its recordkeeping solution available for pooled employer plans (PEPs) in the U.S. next year.

As you know,  the Setting Every Community Up for Retirement Enhancement (SECURE) Act will allow PEPs beginning January 1.

Smart has a 100% cloud-based technology that they claim will be the only solution purposely-built for PEPs.

PEPs are going to be a tough market and my two cents is that betting on launching a turnkey solution just for PEPs and not for single-employer 401(k) plans is a mistake.

I write a lot because social media gets my name out there at a much lower cost than hiring a public relations. director. I know because I’ve been there and done that. I write articles, I blog, and I started this crazy website.

Ever since I started my practice 10 years ago, I have two email newsletters sent out to all my contacts including plan sponsors, and one geared towards financial advisors. Over time, I’ve gained contacts and lost some. I think my latest number is 12,000 subscribers and maybe I get a 20% open rate for my emails.

The most important thing about emails is that it’s through Constant Contact, so there is an easy unsubscribe button. I understand people’s time is limited and maybe they don’t have time to read my emails and I understand that. I don’t take offense when people I’ve networked with or worked with in the past decide to unsubscribe. It’s not personal, it’s business.

When you network and you meet people through LinkedIn, I assume that I’m going to be added to their mailing list. I assume that because that’s what I do. From time to time, I’ll check the emails as a courtesy and I don’t unsubscribe from these emails even for the financial advisor that asked me to do an online meeting with her 5 years ago and has done nothing with me since. The retirement plan business is a relationship-driven business, so I don’t want to offend anyone or hurt their feelings.

That being said, if you send emails out, have an unsubscribe button. This isn’t organized crime or my old synagogue; people have a right to quit. If they don’t want your emails, they should have the ability to unsubscribe. If you don’t offer that ability, then you’re going to peeve a heck of a lot of potential clients and fellow plan providers.

I’m certainly passive-aggressive when I state that I have two financial advisors who consistently barrage me with emails without unsubscribing buttons. It wouldn’t be so bad to get an email now and then, but a daily email? I have one financial advisor who sends me 3-4 email updates a day. I don’t have the heart to tell them to stop bothering me, so I’m partly to blame for not setting them straight.

Your emails aren’t the Hotel California where people can check-in but never leave. This isn’t some cult; you need to let people have the opportunity to opt-out of receiving your emails.