The Rosenbaum Law Firm P.C. Blog

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

Years ago, I was the Executive Editor of my law school’s news magazine. In one of my final issues, a friend of mine wrote an article that was serious, but funny at times. His bone of contention was over professor evaluations and how they were given before the final exam, so it was before we got our grades. This author contended that evaluations should be given after we got our grades because the grade turned his view of a specific professor based on the grade. In his critique, he said a grade turned him from wanting to say hello to a professor on the street into not wanting to take a leak on them if their rear end was on fire. It was a really funny article because it was so truthful, a grade most of the time would tell us whether we would enjoy the class or not.

When it comes to retirement plans, I often find that plan sponsors only start to understand the competency of their third-party administrator (TPA) during the de-conversion process. The de-conversion process is what it says it is the de-converting of a retirement plan from a TPA during a change of providers. I often liken the de-conversion process of moving your residence because it can be a harrowing experience.

Why is de-converting so harrowing? It can be based on the competency over the TPA you are leaving, as well as the plan sponsor’s diligence in their role as a plan fiduciary. For a plan that has reviewed their TPA’s work by themselves or the use of a third party or a plan being handled by a competent TPA, it isn’t so harrowing. For a plan sponsor that doesn’t know the ADP test from ADP, the payroll company, it can be. The reason why it can be so harrowing because if there is no review of the TPA’s work, the de-conversion process is the only time that a plan sponsor will beware whether there are any compliance issues that need to be fixed. So often, I have worked with clients who didn’t know they should have failed their Top Heavy test because the TPA did it wrong or realize they were being overcharged for services. Again, there are so many competent TPAs that offer such a seamless transition during the conversion process; it’s almost so clean that you can eat off the floor. However, there are too many times where plan sponsors get a little shock as to the compliance problems they are now forced to fix as a new TPA will not like to assume the administration of a plan with so many issues.

That being said, to avoid the shock of the conversion process, I recommend that a plan sponsor have an administrative review of their plan annually. Whether it’s the use of my Retirement Plan Tune-Up for $750 or whether it’s someone else’s independent review, I always say the evil you know is better than the evil you don’t.

My most famous and most read articles has been the series of articles concerning my opinion that the two top payroll providers aren’t very good with 401(k) plan administration. While it’s very popular with my reading public, it’s very unpopular with people who work for payroll provider third party administrators (TPAs).

Over the years, I’ve received some criticism from people who work at these payroll provider TPAs and I understand it comes with the territory. What I don’t understand is why people bother to criticize an opinion. There are plenty of advisors who have no issues with these TPAs and do you know why? It’s because it’s their opinion. My opinion is based on my experience of working with plan sponsors who have needed corrective action after being former clients of these TPAs.

People like Nickelback, people like Caddyshack II, people liked ruffled shirts and bellbottoms. That’s OK, opinions are fine. Do you disagree with me? That’s fine, but you can’t change my mind, only I can.

When a government agency is plotting, they have to do it in public and it’s just a matter of when you find the clue.

The Department of Labor (DOL) has filed a draft regulation called  “Improving Investment Advice for Workers & Retirees Exemption” with the Office of Management and Budget (OMB).

We can’t read the proposed regulation, but it’s safe to say that it represents the DOL’s new fiduciary rule, and that the “exemption” referenced in the title of the rule will be related to the regulation best interest package currently being implemented by the U.S. Securities and Exchange Commission (SEC).

The only issue is that this is a Presidential election year and we remember the last time there was a Presidential election year, a certain new fiduciary rule that was going to be implemented and was killed off when Trump was elected.

The intention of multiple employer plans is that for the small plan market, their fees should be lower than single-employer plans. According to a paper by Natalya Shnitser, assistant professor at Boston College Law School, it seems that the average expenses of MEPs, especially MEPs belonging to professional employer organizations (PEOS) are higher.

This isn’t surprising since most MEPs haven’t achieved the size of critical mass to achieve the cost savings they were intended to provide. I know it firsthand, after setting up several MEPs over the years.

In 2016, the average administrative fee in PEO MEPs was 86 basis points, more than two and a half times the level in single-employer plans, which was ONLY 32 bps. Association MEPs (Closed MEPs), or those sponsored by trade groups or other types of associations, had an average administrative fee of 53 bps, and all other types of MEPs averaged 35 bps.

A settlement has been in a lawsuit accusing fiduciaries of the JPMorgan Chase 401(k) Savings Plan of self-dealing.

Records show that a settlement of $9 million will be made to “fully, finally and forever resolve, discharge and settle the released claims.”

 In this case, plaintiffs argued that the company’s 401(k) plan fees were not properly controlled and that conflicts of interest damaged net-of-fee performance. They also alleged plan fiduciaries filled the plan up with proprietary fund investment options that charged excessively high fees that inured to the benefit of affiliates of JPMorgan and one of JPMorgan’s closest business partners, BlackRock Institutional Trust Co.

As discussed so many times before, plan sponsors that also sell their own proprietary mutual funds are targets for these kinds of lawsuits.

I had said that one of the problems with the coronavirus and the CARES Act is that participants would raid their retirement accounts, especially if they were terminated. Of course, I was right.

A new survey by MagnifyMoney found that 30% of Americans have raided their retirement accounts for early distributions and the majority of those who have done it, used it to spend on groceries.

The survey found that 47% of savers have either stopped or lowered their retirement savings contributions amid the coronavirus pandemic. 21% have reduced their contributions, while 26% have stopped saving altogether. 3 in 10 participants have withdrawn funds from their accounts within the last two months. Another 19% said that they plan on doing so but haven’t yet.

This comes as absolutely no shock because when times are tough, people raid their retirement accounts because so many Americans live hand to mouth.

The Department of Labor (DOL) has finally issued final regulations providing a new “notice and access” safe harbor for retirement plans to furnish required disclosures by email or other electronic ways to plan participants and beneficiaries.

Under this process, the plan administrator may send participants and beneficiaries electronic messages notifying them of the availability of documents and required disclosures posted on the plan’s website.

The Safe Harbor will reduce costs for most retirement plans because it expands the availability of electronic disclosures The Safe Harbor only applies to retirement plan disclosures under the DOL’s jurisdiction. This includes summary plan descriptions (SPDs), participant fee disclosures, pension benefit statements, and blackout notices.

The Safe Harbor won’t apply to documents that are within the IRS’s jurisdiction, such as safe harbor notices

The Safe Harbor will apply to any participants or beneficiaries for whom the plan administrator has a valid email address or other internet address. This can include active employees who have been assigned a work email address or who have provided a personal email address. Plan Administrators can rely on the Safe Harbor for spouses and beneficiaries only if they have affirmatively provided an electronic address.

The Safe Harbor becomes effective 60 days after its publication in the Federal Register. The DOL will not take any enforcement action against a plan administrator that relies on the safe harbor sooner.

The system that the plan administrator must be designed to alert them if a message “bounces back” or is otherwise invalid or inoperable. If that happens, the plan administrator can either send a message to a secondary address on file for the participant or beneficiary, obtain a new address or send a paper notice as soon as possible. When a participant terminates employment, the plan administrator must take reasonable steps to verify that the address is still accurate and available or to obtain a new address.

To rely upon the Safe Harbor, the plan administrator must first furnish a paper notice to participants and beneficiaries informing them that documents will be furnished electronically to an electronic address. This notice must also identify the electronic address that will be used and provide instructions on how to access them and of the right to request a paper document free of charge or to opt-out of electronic disclosures. This notice must also inform participants that documents will be maintained on the website for a minimum of one year or until the document is superseded by an updated version of the document.

For each document that is being provided online, the administrator must send a separate, electronic “notice of internet availability” (NOIA). The NOIA generally must be furnished separately, calculated to be understood by the average plan participant, and be sent at the time the document is posted online. It must generally include:

The title: “Disclosure About Your Retirement Plan.”

 A statement that: “Important information about your retirement plan is now available. Please review this information.”

Identification, and if identification would not reasonably convey the nature of the covered document, a brief description, of the online document.

The web address (or hyperlink) for the document.

A statement of the right to get a paper version (free of charge) and a statement of the right to opt-out of electronic communications and how to do so.

“A cautionary statement that the covered document is not required to be available on the website for more than one year or, if later after it is superseded by a subsequent version of the covered document.”

The administrator’s or a designated representative’s phone number.

The notice generally may not contain any content other than the items on the above list. It may, however, “contain a statement as to whether action by the covered individual is invited or required in response to the covered document and how to take such action, or that no action is required, provided that such statement is not inaccurate or misleading.”The administrator may send a combined NOIA for a summary plan description; any document or information required to be furnished annually that does not require action by a particular deadline; disclosures authorized for this purpose by the Secretary of Labor or (where disclosure is required by the Internal Revenue Code) the Secretary of the Treasury. A combined notice of internet availability must be provided annually (with a two month “grace period”). 

Documents must remain posted on the website for a minimum of one year or until they are superseded by newer versions.

Documents posted on a website must be posted by their legal due dates for being provided to participants. They must be presented in a way that is calculated to be understood by the average participant and posted in a widely available format or form that is suitable for reading online or printing on paper. Further, the documents must be searchable by numbers, letters, or words. The website on which documents are posted must be reasonably designed to ensure the confidentiality of personal information. The final regulations specifically allow for disclosure documents to be attached to an email instead of posted on a website.

The DOL has retained a requirement that participants be able to request a paper copy of notices free of charge or be able to opt-out of electronic disclosures altogether in favor of receiving paper copies.

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

My latest newsletter for plan providers can be found here.