DOL issues new ESG rule

The Department of Labor (DOL) announced a final rule for fiduciaries of private-sector retirement plans regarding environmental, social, and governance (ESG) investing.

The final rule amends the department’s longstanding investment duties regulation, first issued in 1979, to codify a clear regulatory structure for considering investments for ERISA plans.

The new rules require that plan fiduciaries select investments based on “pecuniary factors,” or those that the fiduciary determines is expected to have a material effect on risk and/or return of an investment, not its social and environmental impact.

The rule will be effective 60 days after publication in the Federal Register. However, plans will have until April 30, 2022, to make any changes to certain qualified default investment alternatives, where necessary to comply with the final rule.

With a change in the White House, don’t be surprised if this new rule dies quickly.

Posted in Retirement Plans | Leave a comment

DOL has a banner year in 2020 with investigations

The Department of Labor’s Employee Benefits Security Administration (EBSA) had a banner year in fiscal 2020, having recovered over $3.1 billion in direct payment to plans, participants, and beneficiaries. $2.6 billion of that was recovered in their investigations. EBSA closed 1,122 civil investigations with 754 of those cases (67%) resulting in monetary results for plans “or other corrective action.” EBSA closed 230 criminal investigations which led to the indictment of 70 individuals.

Posted in Retirement Plans | Leave a comment

The Real And Exaggerated Threats To A 401(k) Plan Sponsor

My latest post on JDSupra.com can be found here.

Posted in Retirement Plans | Leave a comment

Don’t be fooled by euphemisms

My favorite comedian was George Carlin and George had a great act on euphemisms and how toilet paper became bathroom tissue and how a used car became a pre-owned automobile. All George was saying that euphemisms can cloud meanings of words and confuse people.

Of course, the retirement plan industry has euphemisms and loves to package simple products into some intricate wrapping and make it sound more important that it is or denote that this product offered by countless plan providers is somehow exclusive.

I was at a conference once and a third party administrator (TPA) was touting their proprietary volume submitter retirement plan document with special allocation groups with a group for each employee. A colleague asked me about this unique proprietary plan and I told him what it was, a 401(k) plan with a new comparability formula. There is nothing unique about it as countless ERISA attorneys and TPAs offer these plan documents.

I remember a former TPA competitor touting a retirement plan that was specifically tailored for medical practices and law firms. All they were offering was a cash balance plan that was participant-directed (before the cash balance regulations disallowed them).

We, of course, have bundled providers offering fiduciary warranties that sometimes aren’t worth the paper it’s written on and we have several plan providers touting their co-fiduciary services which kind of reminds me of when my mother was touting how well my brother in law folded clothes, so what?

Plan sponsors should concentrate more on substance than on flash and if they love flash, understand whether what the plan provider offering is unique or something no different from what every other plan provider is offering.

Posted in Retirement Plans | Leave a comment

Making a PEP out of Solo 401(k) plans?

People with solo 401(k) plans and other smaller plans tend to get very little services. Most don’t have the assets for a retirement plan advisor, so they got it alone. Going it alone for investments and plan administration could be a bad idea for many, especially those with solo 401(k) plans.

So that is why using Pooled Employer Plans (PEP) may be an effective way of offering professional-level guidance and support to small business owners that couldn’t ordinarily afford such a type of plan. Administration on solo plans is easy because there is no compliance testing and recordkeeping is only an issue if the solo 401(k) plans cover the owner and their spouse.

Perhaps PEPs can be used as an effective way to offer retirement plan guidance to those who wouldn’t have it.

Posted in Retirement Plans | Leave a comment

DOL thinks Cyber Security is a big deal, so should you

The Department of Labor (DOL) is interested in the concerns about cybersecurity, so expect some guidance.

Tim Hauser, Deputy Assistant Secretary for National Office Operations at DOL’s Employee Benefits Security Administration (EBSA), says that we will likely see more focus in the DOL’s investigations on the adequacy of various cybersecurity programs, especially for large plans in terms of making sure the providers they hire are observing good cybersecurity practices. Hauser has indicated that the guidance would be informal, and not a formal notice and comment rulemaking.

I expect means that in audits, DOL will ask plan sponsors about cybersecurity concerns and whether they raise that with their plan providers. Regardless of the guidance, you need more focus on cybersecurity if the DOL does as well.

Posted in Retirement Plans | Leave a comment

Expect more micro plan solutions

With the implementation of rules that will finally allow Pooled Employer Plans (PEPs), expect more and more retirement plan providers offering micro plan solutions for small employers.

Why the move to offering better solutions for micro plans? There are a lot of plan providers that are wary of PEPs and concern (as I have pointed many times before) that many will fail because they won’t reach the asset size to guarantee cost savings. That’s why these wary providers are heading their bets because by offering better terms for micro plans, they feel they will eliminate the need for PEPs. While that might seem like a great solution, that doesn’t helo with one of the benefits of PEPs that most providers will not advertise about and should, which is the delegation of fiduciary authority to a pooled plan provider.

We are less than a few months away from PEPs and time will tell whether a PEP or micro plan better pricing is the way to go.

Posted in Retirement Plans | Leave a comment

IRS announce 2021 Retirement Plan Limits

It is that time of the year, again. The Internal Revenue Service  has announced inflation-adjusted figures for retirement account savings for 2021.

Effective January 1, 2021, the limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) remains unchanged at $230,000.

The limitation for defined contribution plans under § 415(c)(1)(A) is increased for 2021 from $57,000 to $58,000.

The limitation under § 402(g)(1) on the exclusion for elective deferrals described in § 402(g)(3) remains unchanged at $19,500.

The annual compensation limit under §§ 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $285,000 to $290,000.

The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan remains unchanged at $185,000.

The dollar amount under § 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period is increased from $1,150,000 to $1,165,000, while the dollar amount used to determine the lengthening of the 5-year distribution period remains unchanged at $230,000.

The limitation used in the definition of “highly compensated employee” under § 414(q)(1)(B) remains unchanged at $130,000.

The dollar limitation under § 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in § 401(k)(11) or § 408(p) for individuals aged 50 or over remains unchanged at $6,500. The dollar limitation under § 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in § 401(k)(11) or § 408(p) for individuals aged 50 or over remains unchanged at $3,000.

The compensation amount under § 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $600 to $650.

The limitation under § 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $13,500.

The limitation on the aggregate amount of length of service awards accruing with respect to any year of service for any bona fide volunteer under § 457(e)(11)(B)(ii) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $6,000.

The limitation on deferrals under § 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $19,500.

The limitation under § 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $50,000.

The compensation amount under § 1.61-21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes remains unchanged at $115,000. The compensation amount under § 1.61-21(f)(5)(iii) is increased from $230,000 to $235,000.

The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under § 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax Regulations remains unchanged at $135,000.

Posted in Retirement Plans | Leave a comment

Don’t let other providers become the stick in the wheels of progress

I had a friend of mine in college who was involved in student politics like I was and he once proclaimed to the school newspaper that he was “the stick in the wheels of corruption.” 20 years later, I have used that line many times. In law school, I was “the stick in the wheels of hypocrisy.” You get the gist.

In business and life, one of my problems was having to deal with depending on others. Most people didn’t have the enthusiasm that I have may have for something or trying to get work done so I can get paid. When I was working for that law firm and I had this dream of building a national ERISA practice, there was nothing worse than depending on the law firm management to approve my articles and marketing materials in either a timely fashion or in the same structure I submitted as.

So many times I will hear from plan providers who lament that their work is held up by depending on other plan providers such as the advisor who has to work with a 3(38) advisor or an advisor who is dependent on a third party administrator to get back with on a proposal. Every retirement plan provider is busy, but if someone is consistently causing you to delay your work, then maybe it’s time to depend on someone else.

Time is money and you can’t afford retirement plan providers that are wasting your time.

Posted in Retirement Plans | Leave a comment

Don’t let clients get angry

Retirement plan providers can never be arrogant when it comes to the gripes raised by their clients. If clients have an issue with your service, you can’t discount because anger festers and boils over into an irreversible cycle that gets you fired. If something goes wrong, you have to explain why and you just can’t come up with an excuse when it’s convenient for you. You need to be hands-on and nip problems in the bud. Clients have a right to know why something goes wrong and you can’t just offer an explanation when it’s time for the client to renew their service agreement with you or pay your bill.

For every relationship that went sour in my life, the reason 100% of the time was a lack of communication. Whether it’s one side or both sides, the lack of communication festered into anger that irreparably damaged the relationship. A retirement plan provider can’t afford to be arrogant because there are dozens of other competing providers ready to replace you.

Constant communication is one of the great tools that a retirement plan provider can have in preserving their relationship with their clients, so it’s key that you are in frequent communication and never take advantage of their business, their trust, and their goodwill. Otherwise, you may be out of a job.

Posted in Retirement Plans | Leave a comment