The Rosenbaum Law Firm P.C. Blog

As I have stated before, I am loath to hire employees because I was an employee once too. That pretty much means that I never met an employee who thought they were overpaid. For that matter, I never met an employer who thought that they pay their employees too little.

Despite what my former colleagues at union-side law firms, employers typically don’t have a treasure chest of jewels they are keeping away from their employees, it’s just the dynamic of a relationship where an employee wants to make as much as they can and an employer wants to pay as little as possible. It’s not evil, just human nature.

For those that never ran a business, they don’t understand how costs of payroll and benefits must be tied to revenue because an employer’s pocketbook is not limitless.

Thanks to medical costs and taxes, it’s expensive to have employees. Employers are taking away benefits and not putting benefits out there that are enticing to current and prospective employees. As an employee, regardless of where I worked, the health plan got worse and worse because medical costs are spiraling out of control and the employer had to rein in costs.

While employers may feel free to cut back on the benefits they offer, the one benefit that they can’t afford to neglect is a retirement plan. An employer can certainly cut back on the contributions they make to their retirement plan(s), but they can’t just cut back on the services to their plan by sticking the plan with a cheap provider (if they are the ones paying for administration, rather than the plan) if it’s going to negatively affect the plan’s administration and compliance.

The reason is that employers as plan sponsors are also plan fiduciaries too. So employers still may want to cut back on benefits, they need to make sure that they don’t do something that could negatively impact their role as plan fiduciaries.

Any change of plan provider or even in a change in benefits should be done in consultation with your plan providers and/or ERISA attorney to make sure that any cutbacks in benefits you must make won’t increase your plan fiduciary liability exposure.

I always talk about my open-door policy with financial advisors and third party advisors where I will help these plan providers out without me actively seeking their business. I kind of have that liberty because it’s my law practice and I don’t have the stress to bill when everything at the end of the month is mine anyway.

The reason that I take the phone calls and respond to the e-mails is the belief that the retirement plan business is relationship-driven and I learned that by a friend of mine named Richard Laurita (may he rest in peace). He was the salesman at two TPAs I worked with. Rich was all about developing relationships in this business. I once joked that he probably couldn’t spell 401(k), but he didn’t need to because the relationships he developed over time brought him and his employers business. I follow the same approach and quite honestly, most of the plan providers I have talked to over the past 6 years never brought me business and that’s fine because someday they might. The help I give in these types of conversations is free and I can probably say on one or two fingers how many plan providers abused that free help. I believe that if you help people, they will remember you.

So here is the part where I talk about one of my success stories. There was a registered investment advisor with absolutely no retirement plan clients and he wanted in this business. For over two years, we spoke on the phone and met where he introduced me to people and I introduced him to people, but no business for me. I’m a patient man, that’s what happens when you go to school for 22 years straight. Over time, he took my advice on how he can partner with other advisors and he attended conferences that I suggested he attend.

Well that registered investment advisor who was honest that he didn’t know much about that retirement plan business and wanted to seek help from those that could, including yours truly, has netted a few retirement plan clients and is now an ERISA §3(38) fiduciary (hiring me to develop his service agreement at a flat fee).

The Secure Act created a new small employer automatic enrollment credit of up to $500 per year to employers to defray startup costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment.

The new credit applies to taxable years beginning after Dec. 31, 2019.

The Internet Revenue Service just opined that the tax credit applies separately to each eligible employer that participates in a multiple employer plan (MEP) under Section 413(c). So each eligible employer generally would qualify for the credit for the three-year credit period beginning with the first taxable year in which the eligible employer’s participating employees are first covered by an eligible automatic contribution arrangement (EACA) under the MEP.

The IRS also advised that an eligible employer may not receive credit with respect to taxable years in more than one 3-year credit period. The Notice explains that an eligible employer may receive credit for taxable years only during a single 3-year credit period that begins when the employer first includes an EACA in any qualified employer plan.

Under the SECURE Act, 401(k) plan sponsors will be required to have a dual eligibility requirement under which an employee must complete either a one-year-of-service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes more than 500 hours of service.

The Internal Revenue Service has advised that all years of service with the employer or employers maintaining the plan must be taken into account for purposes of determining a long-term, part-time employee’s vesting, all years of service with the employer or employers maintaining the plan must be taken into account, including 12-month periods beginning before Jan. 1, 2021.

A little known proposal from the Joe Biden campaign concerning 401(k) plans is giving many in the industry pause for concern.

The Biden proposal would replace the tax deduction that workers get when they contribute to their workplace retirement plan with a tax credit. This reminiscent of a Republican proposal during SECURE Act negotiations that failed to limit salary deferrals.

The idea of replacing the deduction with a tax credit is that it will benefit workers with lower incomes and spur them to invest. I believe that the loss of the income tax deduction may lead highly compensated employees to no longer save for 401(k) plans if it’s less financially rewarding with the loss of the tax deduction. I also don’t think any tax credit will increase the contributions of lower-wage workers to offset the loss of contributions by highly compensated employees.

I’m all for increase incentives to get all people to save for 401(k) plans, I just think this proposal, if passed, will create problems for the 401(k) business.

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

My latest newsletter for financial advisors can be found here.

The Securities and Exchange Commission is urging professionals to take extra steps to ensure the safety of investors’ assets.

The SEC is encouraging firms to “review and make any necessary changes to their policies and procedures around disbursements to investors, including where investors are taking unusual or unscheduled withdrawals from their accounts, particularly COVID-19 related distributions from their retirement accounts.”

This is a clue that if you’re a plan provider in charge of distributing retirement plan assets to participants that you add increased security in the distribution of assets to ensure that there is a zero chance of cyber theft or identity theft.

When I was a kid, there were two varieties of Cheerios, one version of Listerine, and one type of Crest toothpaste. If you got to the supermarket these days, there are about a dozen varieties of Cheerios, more than a half dozen versions of Listerines, and so many varieties of Crest that your head can spin. The bottom line: there is always something for you to buy.

If you’re a plan sponsor, there are so many things for you to buy. Plan sponsors need the services of plan providers, an ERISA bond, and fiduciary liability insurance. The problem is that many times, plan sponsors are being sold services that they don’t need and the plan sponsors are unaware of it unless they have an ERISA attorney or trusted plan advisor helping them

For example, I have a client with a 30-year-old profit-sharing plan. The bulk of the assets are in an insurance policy that the owner/sole participant bought on the advice of the insurance salesperson/plan advisor. The owner wants to terminate the plan and transfer the insurance policy to himself at distribution. The insurance policy has been paid up for years, so what does another insurance salesperson try to do? He tries to sell the owner a new insurance policy for a company that is about extinct and where the owner is around 70. Thankfully, this owner has an ERISA attorney (cough, cough) and third-party administrators who know what’s best for the client.

The point is that plan sponsors have money and there will always be plan providers willing to take that money especially those that are a little unscrupulous and selling plan sponsors stuff that they don’t need.

If you’re being sold something, make sure it’s something you need as a plan sponsor.

Finding things wrong with a 401(k) plan is very easy when a settlement in. a lawsuit has been reached.

BTG International just settled a lawsuit where they are paying $560,000 in a settlement. The complaint stated that the 401(k) plan more than 100 investment options, 53 of them “appear to be managed by John Hancock, with the remainder paying revenue sharing to John Hancock.” John Hancock is a solid plan provider, but more than 100 investments in a 401(k) plan and 53 managed by Hancock? This was a lawsuit waiting to happen.

The complaint also alleged that BTG limited their selection of funds to only those funds which provided enough revenue sharing. They also alleged that the defendants failed to accurately disclose the fees John Hancock received on Form 5500 filings from 2012 to the present.

I’m an ERISA attorney and if I had a client that had more than 100 investments, I’d say they’d have a problem even without looking into the Hancock proprietary products. We can argue whether plans should have more than a dozen funds (not including target date funds), but we all can agree that with over 100 funds, it’s probably at least 80-85 too many. I always say in life, “don’t make yourself a target.”