The Rosenbaum Law Firm P.C. Blog

Transamerica announced the launch of DWC 401(k) Pooled Plan Solutions, featuring the expertise of DWC – The 401(k) Experts, Transamerica, and Leavitt Retirement Partners serving as the 3(38) fiduciary.

With two plan options under a single recordkeeping structure, employers can implement either The DWC 401(k) Retirement Plan Exchange solution or The DWC 401(k) Pooled Employer Plan (PEP). The structure allows employers the flexibility to change retirement plan structures to accommodate growth without any disruption to their employees.

As a plan sponsor, you need to ensure that participant beneficiary forms are up to date. It’s not enough to ensure that every participant has filled one out; you also have to ensure that they’re updated. Family lives and situations change, so it should make sense that what a participant may have selected as a beneficiary might change because of marriage, divorce, or death.

For any plan education and enrollment meetings, I would stress for the participants to update their beneficiary information because as an ERISA attorney, one of the most stressful jobs is trying to determine who a beneficiary is if an enrollment form is missing or some issues might threaten the validity of an executed form (such as a new marriage).

The MTV reality series The Real World ended their opening intro with “to find out what happens… when people stop being polite… and start getting real.” As an ERISA attorney working with retirement plan clients, I often find that what determines a good third-party administrator (TPA) from a bad one is when we find out what happens when the TPA gets fired, and we start getting real.

TPAs get fired for multiple reasons and for a good chunk of the time, it’s not for a lack of competence. TPAs can get fired for higher fees, a change of advisors/brokers (who want to make the change), or because the brother of the law firm’s partner works for the mutual fund company that will now be the new TPA. So it’s business, not personal.

Again, it’s easy to determine who the good TPAs are from the bad ones. The good TPAs will not take it personally and will try to make the transition to a new provider as seamless as possible. I think reputation means everything and since it’s such a close-knit industry, making it easier for a former client to transition business away from you will only help your reputation. Also, there is always the chance that the former client may be your client again, especially if the new TPA fouls things up. I always believe in paying it forward, that making it easier for former clients to leave will only make it easier for new clients to come in. The good TPAs will also spell out in their original service agreement with the client, the exact cost (if, any) of the de-conversion when the TPA is replaced.

The bad ones are easy to spot. They take things so personally and feel the need to take out the frustration of being fired on the former client. Again, it’s business, not personal. I had a client who changed TPAs a few years back. During the change to a new TPA, an IRS audit discovered that the Top-Heavy test was done incorrectly because a couple of law firm partners were misidentified as non-key employees. Rather than admitting the error, the TPA blamed the client for the error and then whined that the client still had not paid all their invoices, forgetting that the client had spent thousands in legal representation to correct that Top Heavy error.

I knew well of one of those bad TPAs. The de-conversion costs were never mentioned in their service agreement with their clients. So based on the level of frustration of being fired and based on who the financial advisor was on the Plan, a client could pay anywhere from $1,500 to $5,000 in de-conversion costs, which effectively became a ransom because the TPS would not release any plan data until we were paid. Of course, screaming three letters, D.O.L. (an acronym for the Department of Labor) usually got fees reduced or waived.

Divorce can be difficult, but changing TPAs should not. I think it’s important for TPAs should maintain a high level of professionalism, especially when it comes to the time when the TPA is being replaced because it’s at those times that delineates the good TPAs from the bad ones.

Advisors ask me all the time about the role of education in participant-directed 401(k) plans. Participant-directed 401(k) plans that are governed under ERISA §404(c) offer the plan sponsors liability protection based on a participant’s gains or losses on their account when they direct their investment.

There have been so many misconceptions that plan sponsors and advisors have had concerning ERISA §404(c) plans. They had this belief that if they just give a mutual fund lineup and some Morningstar profiles to plan participants they are exempt from liability. ERISA §404(c) protection is about following a process and Morningstar profiles are just not enough education to give to plan participants. You have to provide enough information for participants to make informed investment decisions. On the flipside, education to participants doesn’t have to amount to an MBA education, especially if you don’t want to offer advice.

I think an effective education component to ERISA §404(c) plans should include enrollment meetings where the characteristics of the plan are discussed, as well as the investment options, and offering the building blocks of financial education to assist participants in getting a better understanding on how to choose investments.

Advisors who may have issues in offering education should always consider using some of the online resources out there that do offer advice for a fee.

Also, written materials such as plan highlights and some Morningstar profiles should always be distributed.

Also while many advisors dislike this, one-on-one meetings with participants should always be offered. While most participants will probably shun such meetings, they should always be offered to those who want them because as we know, every participant has a different financial goal and need. One-on-one meetings offer participants individualized attention on asset allocation and fund choices; it can be an effective means of educating plan participants more than what a general enrollment meeting can offer. It can help participants understand how retirement plan assets relate to their other assets as part of a comprehensive financial plan.

Advisors should always look at education as liability protection because offering participant education helps a plan sponsor minimize their liability under ERISA §404(c). While I always stress education as an important part of the fiduciary process, it’s not about achieving a specific result from participants directing their investments. Offering participants investment education is like the old proverb, “You can lead a horse to water, but you can’t make him drink.” So no matter how great the education component is, there is no guarantee that it will help plan participants achieve a better financial result because like they say, there is no guarantee in life, except maybe death and taxes. The participant who put all his money into a mid-cap fund because he considers it the “average of the market” may still do so even after getting an education at the enrollment meeting and through one meeting. As with most things with retirement plans, it’s about following a process and not guaranteeing a result.

The problem with starting college and dorming is that your roommate or suitemate might be a maniac. You get connected to these people through a random draw.

When starting a Pooled Employer Plan (PEP) and running it, you have the problem that these unrelated businesses from all occupations join together. It’s not a random draw, but you might have to deal with their bad habits.

The biggest problem for 401(k) plans these days is late deferrals and with so many adopting employers, you will likely end up with one. That’s a big problem. Just had an issue with an adopting employer who didn’t know his company was still deferring, so the deferrals ended up in his pocket to float a dying business. Needless to say, I made sure that things were fixed. Running a PEP, you might see yourself as being at the mercy of the adopting employers. Shape them up or end up shipping them out.

If you restrict eligibility from your retirement plan to a certain group of employees outside of the statutory exclusions (such as union employees or non-resident aliens), it might make sense to determine whether that exclusion is still proper.

Any definitions that are connected in any way with part-time employees can be a problem, especially since the SECURE Act allows long-time, part-time employees to become eligible for the deferral component in the plan. Exclusions from eligibility have to be reasonable, the days where you could exclude employees just on part-time status or by name are over.

In communications with other plan providers, clients, and potential clients, you have to be clear. There isn’t much room for miscommunication. When dealing with clients, miscommunications can lead plan sponsors to some huge mistakes.

Everything you write or say must be clear, there can’t be room for misinterpretation because the stakes are pretty high. I’ve seen too many plan sponsors that were harmed because the third-party administrator wasn’t clear on the information needed for an end-of-year census.

If you tell people what you need and what they need to know in clear language, a lot of mistakes will be avoided.

“The Bears are what we thought they were. Th-they’re what we thought they were. We played them in preseason. I mean, who the hell takes the third game of the preseason like it’s bullshit? Bullshit! We played them in the third game, everybody played three quarters… the Bears are who we thought they were! That’s why we took the damn field!’ then Arizona Cardinals Head Coach Dennis Green.

The rules of controlled groups and affiliated service group rules have one simple rule, if they’re a member of either, companies of those groups have to be tested as one.

Controlled groups, either are members or not, based on the percentages of ownership and commonality. The same can’t be said about affiliated services, it’s all fact-sensitive. Companies that work together with each other or for third parties are likely affiliated services. If they are separate, they probably aren’t. You will only know if you ask the right questions, and that’s why you need an ERISA attorney to dig through the facts.

At home, I have Verizon FIOS for TV and the Internet after having my cable provider, Optimum for about 13 years. A few years ago, I was enticed to re-sign with Optimum and their new Altice converter box/router. When it came the day of installation, the Altice system failed during installation and the installer told me that the Altice system was buggy and wouldn’t be great for another 4 months, so I canceled the installation.

As a plan provider, you can’t afford something buggy that won’t work. Whether it’s your website, an app, or any type of system where plan sponsors have an interface, you can’t afford to look bad in front of clients and other providers. You only get one chance to get it right and that’s what beta testing is all about.

As January 20th approaches, people in this business will question what a second Trump administration means for 401(k) plans. I don’t know because Donald Trump works outside the lines compared to other people in politics.

He has some tax legislation to foster, and I imagine the fiduciary rule proposed by the Biden-led Department of Labor (DOL) might be withdrawn. I also think Bitcoin might get approval by the DOL to appear on fund lineups via a spot Bitcoin exchange-traded fund. What else might happen? Your guess is as good as mine.