The Rosenbaum Lawn Firm Review

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For 401(k) Errors, It Seems To Be All Payroll These Days

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

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The House passes the SECURE Act, but hold your horses

The House of Representatives easily passed the SECURE act, which has significant changes to retirement plans. It will allow multiple employer plans, increase the age for required minimum distributions, and increase annuity options in 401(k) plans.

Yet, it’s premature to talk about the provisions of the bill because the Senate has their own bill to consider. The Senate has the Retirement Enhancement Securities Act (RESA). That means if the Senate passes their bill, some of the RESA’s provisions may make their way into the SECURE Act, or parts of the SECURE Act may be modified through a committee or other Congressional action before being signed into law.

So before you start touting that multiple employer plan/ pooled employer plan for 2022, it’s a little premature.

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DOL sets up new fiduciary rule for December

The Department of Labor (DOL) will propose a new fiduciary rule in December, which will set off another battle with Wall Street and probably lead to millions more in legal fees for broker-dealers to conform.

This time, the DOL will try to have the new fiduciary rule hug the fiduciary rule that the Securities and Exchange Commission is expected to propose during the summer.

This is the third time that the DOL has proposed to change the fiduciary rule and hopefully, the third time will be the charm.

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401(k) Plan Sponsors Can Minimize Their Liability In 8 Easy Steps

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

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Cut through the fiduciary advertising and make sure you get what you were promised

Advertising is a great medium and it’s a medium that could often be confusing to the consumer. So when it comes to the retirement plan business, you have providers providing fiduciary services whether that’s 3(16), 3(21), 3(38), co-fiduciary, or the generic fiduciary services.  Of course, let’s not forget that fiduciary warranty, that is neither a fiduciary nor a wide-ranging warranty

So while providers are advertising these level of services, most plan sponsors are really unaware of what all of this means and I’m sure that there may be providers that may advertise a specific service like a 3(38) without the specific 3(38) discretionary role that comes with it. There may be 3(16) administrators that don’t sign Form 5500.

So while people concentrate on numbers and names, plan sponsors should focus more on what these providers are promising in their contracts. Kosher style isn’t kosher and a 3(16), 3(21), or 3(38) service without the requisite duties and liabilities that come with it isn’t the service they claim. So a plan sponsor should review what types of service are being promised by actually reading the contracts. If they can’t make heads or tails, then hire an ERISA attorney who can.

There is nothing worse in buying a service that really isn’t what it says it is.

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A majority of plan have automatic enrollment, but some work to do

A majority of 401(k) plans supposedly have an automatic enrollment feature. This is what I read in one of the reports from one of these nation 401(k) conferences.

It’s an impressive number since it’s only been 2006 that automatic enrollment has been a part of the Internal Revenue Code. Working for a producing third-party administrator at the time, I suggested that we take a supportive approach of adding the feature and I remember arguing with my friend Richard Laurita who insisted that automatic enrollment would be a public relations nightmare when employees would fight having their paychecks garnished. It didn’t materialize as it’s become more popular.

Getting more people to save for retirement is a good thing and the feature could help with discrimination testing. Where I think more work is needed is that I always saw automatic enrollment as a tool to get participants who are automatically enrolled to actually become actively enrolledby increased deferrals on their own through a thoughtful and engaging process where the participant becomes interested in saving for retirement.  I always saw automatic enrollment as an opportunity to get participants to eventually defer on their own, kind of like training wheels on a bike. I haven’t seen that happen because I still think many plan sponsor and providers fail to really engage and interest plan participants.

Until we improve the enrollment and education meeting process, I don’t think automatic enrollment will be used to its full potential.

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Keep track of former participants

When employees terminate, I feel they will immediately take a distribution from their 401(k) plan or they won’t. The problem is a plan sponsor loses track of former employees and it only becomes an issue when the plan is being terminated.

I think it’s extremely important for plan sponsors to keep track of former plan participants and give them a nudge that they should take a distribution annually. I think removing these account balances is what’s best for plan participants and more importantly, what is best for the plan sponsor. Too often, plan sponsors only wait until plan termination and I think it’s an important housekeeping function that they should do annually, rather than wait for the end.

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A majority of plan have automatic enrollment, but some work to do

A majority of 401(k) plans supposedly have an automatic enrollment feature. This is what I read in one of the reports from one of these nation 401(k) conferences.

It’s an impressive number since it’s only been 2006 that automatic enrollment has been a part of the Internal Revenue Code. Working for a producing third-party administrator at the time, I suggested that we take a supportive approach of adding the feature and I remember arguing with my friend Richard Laurita who insisted that automatic enrollment would be a public relations nightmare when employees would fight having their paychecks garnished. It didn’t materialize as it’s become more popular.

Getting more people to save for retirement is a good thing and the feature could help with discrimination testing. Where I think more work is needed is that I always saw automatic enrollment as a tool to get participants who are automatically enrolled to actually become actively enrolledby increased deferrals on their own through a thoughtful and engaging process where the participant becomes interested in saving for retirement.  I always saw automatic enrollment as an opportunity to get participants to eventually defer on their own, kind of like training wheels on a bike. I haven’t seen that happen because I still think many plan sponsor and providers fail to really engage and interest plan participants.

Until we improve the enrollment and education meeting process, I don’t think automatic enrollment will be used to its full potential.

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Just keep an open mind and listen

In business and in life, I think one of the worst things you can do is to not listen. As you all know, I’m highly opinionated and I always think that one of the worst things that people can do is not listen when someone is giving them honest feedback.

When I hosted that first That 401(k) Conference at Citi Field, I listened to the feedback I got. There were too many presentations and there wasn’t enough networking time. I could have just not listened, but I think when you don’t bother to listen to the feedback, you’re just giving a subtle hint that you really don’t care.

Constructive criticism and advice should be listened to, but they don’t have to be followed. When I’ve done something, I’ve heard some advice and there are times when that advice isn’t very good. However, I listened to it. Nothing wrong with people giving you ideas. If the ideas are terrible, at least you listened.

One of the worst traits a retirement plan provider can have is arrogance and to me, not listening is a form of arrogance.

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