The Rosenbaum Law Firm P.C. Blog

The COVID-19 pandemic has certainly put the kibosh on a lot of things in the retirement plan industry such as some of my regional conferences that were scheduled in Houston, St. Louis, and Minneapolis. There have been some changes put forth by the pandemic that are temporary (such as working from home) and I think there are some changes that are going to be permanent.

One of the positive aspects of the pandemic was the ability of the industry to adjust, without any major disruptions. One thing that stood is how online meeting tools such as Zoom and Webexhave made things for all of us in meeting our clients and other providers. I believe that while in-person enrollment meetings won’t go the way of disco, but I believe that many providers will push for online meetings after the pandemic concludes because of the cost and time savings through online meetings. Saving in time and travel may benefit plan sponsors in the long run, especially if a plan provider charges the plan sponsor with travel costs. While in-person meetings have that personal touch, plan sponsors and plan providers may opt to continue with online meetings for the savings it comes with.

Colorado is just another state that is offering a payroll deduction IRA program, forcing businesses to offer this program if they have five or more employees. I’m in favor of anything that offers increased retirement plan coverage.

Over 40% of private employees in Colorado don’t have access to a retirement plan at work, so this is a good thing. While many plan providers don’t want to compete against the government in the retirement plan space, I believe that many Colorado employers would rather join a multiple employer plan, a pooled employer plan, or their own single-employer plan because of the fear of having the state government involved in the retirement plan business. In states like Colorado, I believe this is an opportunity to get employers who would never get a plan, forced to start one because they don’t want to be enrolled in this state program. When it comes to retirement, I believe that many employers just have. The negative view of government and retirement savings, knowing full well the status of Social Security.

Matrix Trust Co. is being sued in a 401(k) class-action lawsuit by a Minnesota engineering firm that alleges that Matrix took millions of dollars from retirement plan accounts.MBA Engineering alleges that Matrix Trust unlawfully retained potentially hundreds of millions of dollars in 12b-1 fees, non-float cash interest, and float cash interest from more than 60,0000 customers through nondisclosure and concealment.

The plaintiff claims that Matrix did not disclose that customers’ assets were earning non-float and float cash interest, no disclosure whether they were earning 12(b)-1 fees and by how much, and that Matrix retained that money as compensation. Matrix vehemently denies any wrongdoing.

It should be noted that this is the same MBA Engineering that sued Vantage Benefits, claiming that they stole $2.3 million in retirement assets from the participants in the company’s plans. Jeff Richie and his wife have pleaded guilty to charges of embezzlement ad I question whether this lawsuit against Matrix has anything to do with what happened with Vantage since Matrix was the custodian of these plans and this might be a workaround that.

My latest newsletter for plan providers can be found here.

People are flawed, except for saints and Popes. One of my many flaws is that I enjoy being right. I love predicting things and being right (such as the end of revenue sharing, and a former employer going out of business within 5 years by closing up within 2). But I will admit when I’m dead wrong (Apple opening up their stores wasn’t a bad idea and Amazon could sell stuff beyond books, CDs, and DVDs). One thing I was right about was automatic enrollment.

When I first heard of automatic enrollment, it was called a negative election and it was only recognized through some Internal Revenue Service guidance to a specific plan sponsor in around 1999. I hated it and the reason I hated it was because I saw it as something out of the Communist Soviet Union (I was an old red baiter). The negative election was a gimmick for a plan sponsor to goose up their deferral rates for non-highly compensated employees because the guidance and zero fiduciary protection because the 401(k) plan was an ERISA 404(c) plan meant that any negative election money was doomed to cash or stable value since the participant never directed their investments. My view of the negative election changed with the implementation of automatic enrollment in the Internal Revenue Code as part of the Pension Protection Act of 2006. I felt that the reliance on a Qualified Default Investment Alternative for fiduciary protection meant that participants automatically enrolled could have an account balance that just wouldn’t sit in cash or cash equivalent. As a highly opinionated ERISA attorney for a producing third-party administrator (TPA), I reached out to my bosses and some of the other decision-makers on why we should let our clients know why auto-enrollment was important. I felt it was an effective way to increase participation and to increase assets under management. I jokingly say that until this day, I never received a response to my email.

Studies have consistently shown that adding automatic enrollment to the plan increases participation in the plan and increases the retirement savings of plan participants. It’s more than a gimmick to help with testing, it’s an effective way to get employees involved in saving for retirement that they never would have done on their own.

Obi-Wan Kenobi once said that only Siths deal in absolutes. Having an ERISA expert saying publicly that there is a 95% that the recently proposed new, new Fiduciary rule (or is it new, new, new?) will be implemented, it’s not an absolute, but it’s certainly inaccurate. I would say that there is a 95% chance that the new new rule will be implemented when there is a 95% shot that President Trump will be re-elected. Even my old Professor from Stony Brook, Helmut Norpoth, only thinks that there is a 91% chance that Trump will be re-elected and he has a pretty good track record on Presidential predictions.

 The point here is that any type of discussion regarding proposed regulations or proposed legislation is that there is so much depending on politics. If Hillary Clinton would have been elected in 2016 like almost everyone predicted (not Norpoth), the Obama era rule would have been implemented and this discussion here would have been moot. This new new rule will live or die based on a certain Presidential election this November. I’m not 95% certain who is winning in November, so I’m not 95% sure about any proposed regulations being implemented after November.

While the 4 Questions during the Passover holiday asks why this night is different than all other nights, the Internal Revenue Service (IRS) has reminded us that this year for required minimum distributions (RMDs) are different than all other years.

On July 17^th, the IRS reminded us of the change in 2020, thanks to the CARES Act. The CARES Act waives RMDs during 2020 for IRAs and retirement plans, including beneficiaries with inherited accounts. This waiver includes RMDs for individuals who turned age 70½ in 2019 and took their first RMD in 2020.

No distributions from a defined contribution plan or IRA made in 2020 are considered RMDs. The distribution that would have been an RMD (if this was any other year) rather is an eligible rollover distribution and can be rolled back into the same plan, if the plan allows that, or to any other plan or IRA that may accept eligible rollovers.

The IRS also reminded us that an IRA owner or beneficiary who already received their RMD in 2020 and who wants to repay the distribution to the distributing IRA must do so no later than Aug. 31, 2020, to avoid paying taxes on that distribution.

With less than six months before the launch of pooled employer plans (PEPs) comes word that the Department of Labor (DOL) has some proposed regulations on tap.

The Office of Management and Budget’s Office of Information and Regulatory Affairs website shows that the proposed regulation was received on July 15. The proposal must undergo a review at OMB before being released for a public comment period. So expect some guidance very soon.

Signing up with a third-party administrator (TPA) is like getting married, you come in with the best of intentions and you never think that things won’t work out.

In 22 years of being an ERISA attorney, I have never met a plan sponsor who understood what the termination fees were when they signed up their contract. That’s troubling because when things go south, there might be the sticker shock when a plan sponsor realizes what it’s going to take to break free from a TPA that they want to get rid of.

Deconverting a plan takes a lot from the TPA’s side and any termination costs are a proactive way for TPAs to hold on to their clients, especially those who might fire their TPA the way that George Steinbrenner fired managers pre-Joe Torre.

It’s important for a plan sponsor to understand upfront, what it will cost them to break free when things go south. By the way, zero chance that a TPA will negotiate a termination fee the way you can negotiate a pre-nuptial.

My latest newsletter can be found here