The Rosenbaum Law Firm P.C. Blog

Fidelity Investments settled a class-action lawsuit regarding its own 401(k) plan for $28.5 million.

The class-action case alleged that Fidelity breached its fiduciary responsibility to plan participants by including its proprietary products on the fund lineup. Fidelity previously settled another case in 2014 for $12 million regarding revenue sharing within their 401(k) plan.

Being a mutual fund company and trying to keep up appearances by including their funds in a 401(k) line up, this $28.5million is the cost of doing business because how would it look if Fidelity didn’t have any of their owns funds within their 401(k) plan? It would be like the restaurant workers who order takeout. As long as mutual fund companies offer their funds within a 401(k) plan, this is going to happen.

In 1984, Lorne Michaels created a new show, based on Saturday Night Live (SNL) when he was no longer SNL’s producer. It was called “The New Show”, how clever. It failed, people liked the original and within a year, Lorne came back to SNL as Executive Producer.

The recent decision by the Department of Labor (DOL) to unveil a proposed new fiduciary rule is certainly interesting. Since the canning of the old new rule, thanks to the Trump ruled DOL rolling over by not appealing a negative court decision, it took over 2 years to develop a new, new rule. I see lots of problems.

The biggest problem is that the proposed rule was released during a Presidential election year. Despite my Professor Helmut Norpoth’s view that Trump has a 91% chance of being reelected, President Trump’s re-election is still very much up in the air. A Joe Biden victory will likely lead to the pullback of this new, new fiduciary rule with their hopes of a new, new, new fiduciary rule that will be more stringent on brokers and insurance salespeople. My second concern is that the new rule is a watering down of the 5 parts rule, allowing enough leeway for brokers and insurance salespeople to still do what’s best for them.

As an ERISA attorney, I can also write 85 articles about the effects of this new, new rule, but I’m not going to take a bet that it will ever take effect. This November will solve it.

A majority of 401(k) plan sponsors have said that they haven’t felt the need to stop or eliminate contributions during the coronavirus pandemic, according to a new survey by the Defined Contribution Institutional Investment Association.

About 86 percent of plan sponsors said they aren’t considering suspending matching employer contributions, just 8  percent said they already have. Meanwhile, 92 per cent said they aren’t considering reducing those contributions, with just 3 percent saying they’ve done so.

These surveys are always funny because they state the obvious. According to the survey, only a small amount of companies have reduced or eliminated matching contributions, that’s because 13 percent of plan sponsors said they’ve laid off employees, while the same amount said they’ve actually increased hiring in certain departments. If a survey would suggest 20% of more of plan sponsors cutting back or eliminating matching contributions, that would be like a depression.

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

As a 401(k)-plan sponsor, the new Department of Labor (DOL) rules that allow for the electronic delivery of important ERISA notices is a no brainer.

You will no longer have to deal with the mailings and the bounced back mail, only to deal with the bounced back email messages, as well as collecting email addresses for your employees to allow for delivery in the first place  There will be some annoying housekeeping details that needed to be done to get this going, but in the overall scheme of things, so much time and money will be saved by going through the e-disclosure route. Saving paper and saving stamps may allow for fees to be lowered for plan participants, especially if you pay a mail charge.

Theft by plan fiduciaries does happen and it’s not hard to find out who did it.

The problem with theft by cyber breaches is that the cybercriminals are quite good at keeping themselves invisible as soon as the theft has been completed, unlike fiduciaries where there is a noticeable fingerprint of theft. As a plan sponsor, identify with your plan providers as to the delegation of liability by you or assumption by you.

They said it best in This Is Spinal Tap, there is a fine line between being clever and stupid.

Behan Bros, Inc. Retirement Plan is an annual valued 401(k) plan with a valuation date of December 31st. As with many plans, there is an ability to create a special valuation date.

Well, participants who terminated in 2018 were told that in early 2019 that they were entitled to a distribution based on December 31, 2018. Even though the market was up in 2019, they were told that the plan sponsor would not create a special valuation date. These former participants decided to keep their money in the plan. They then requested a distribution of their account balance in January 2020, based on a higher December 31, 2019, balance. Through March, these former participants were told that the annual valuation was not done. Then COVID-19 struck and the markets went south. On March 25, the plan sponsor indicated that because of the volatility in the market and to protect plan assets, they would create a special valuation date. Based on the new valuation date, two former participants would have received $20,000+ less, each.

The troubling aspect is that these former participants asked for distribution in January and the plan sponsor delayed payment because the valuation wasn’t done. Add the fact that the owners have account balances in the plan and you have the recipe for a nice lawsuit. Special valuation dates become problematic if you have participants with outstanding requests, based on a valuation with a vastly higher account balance.

Everyone knows that I’m a huge baseball fan (these 401(k) conferences have allowed me to travel to stadiums around the country), so I’m tremendously disappointed as to what has been going on or has not been going for the 2020 Major League Baseball season. Ultimately, the breakdown is about trust and the players haven’t been able to trust the owners since the recognition of the Major League Baseball Players Association as the player’s union.

So much of what we do in business is built on trust. Whether we serve as plan fiduciaries or how we refer business to others, so much is built on trust. Without trust, you have nothing, That’swhy I’m always perplexed when I will get the email or LinkedIn invite where the advisor is already trying to be my referral source for the clients I have.

Trust is such a huge component of success in this business, that you should never lose sight of it and never betray it.

According to the J.D. Power 2020 U.S. Retirement Plan Participant Satisfaction Study, most plan providers aren’t helping participants in the participants’ eyes.

Just 27% of retirement plan participants say they have accessed professional financial advice related to their plan, and 29% are either unaware of whether such advice is available or perceive that it is not available to them. 22% of retirement plan participants say they’ve had no interaction with their provider during the past 12 months.

Before plan providers get twisted in a knot, remember this is a survey of plan participants and their perception may not be fully grounded in reality. Communicating with participants effectively is always a challenge and it’s one of the greatest challenges that a provider can go through.

My latest newsletter can be found here.