Old loans can come back to bite you in an audit

There is nothing wrong with offering loans with your 401(k) plan. What will be wrong is if the program isn’t administered properly and you don’t have the backup to prove you administered it correctly.

One of the biggest targets of a 401(k) plan audit by the Internal Revenue Service (IRS) is the loan program. The IRS agent is going to want to see the loan documents, the loan repayments, and a Form 1099 if there has been a default. Anything missing on your end with loans is going to be a problem with the agent. Not only do you need the requested paperwork, but you also may discover that it wasn’t previously administered, such as a loan default occurring because payments weren’t made to a participant’s loan.

Regardless of what could go wrong, be on the alert that something bad has happened and make sure it’s corrected before the IRS agent on an audit finds first.

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The half-empty look from an IRS agent

As a plan sponsor being investigated by an Internal Revenue Service (IRS) agent, there is one thing you might not be aware of. The IRS agent is there to ensure there has been voluntary compliance by you to the provisions of the Internal Revenue Code.

That means the IRS agent has a half-empty view, they are “pessimists” at heart. If you don’t have the requested loan documents or the last restatement, they take the position that it was never done. If you don’t have a restated plan document since 2002, they are not going to take your word for it. They can’t.

That’s why it’s necessary for you to keep good records because there is nothing worse than getting penalized for something you did.

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Don’t be that person

Social media is a great benefit for your 401(k) business, but sometimes it can be a disaster if you let it.

I’ve seen too many business professionals and companies that get in trouble on Facebook for posting things that are just unprofessional. I might post some things on Facebook that I probably shouldn’t, but nothing that might give plan sponsors and fellow providers working with me. How you deal with people on Facebook dealing with politics or just customer complaints will tell a lot about you. You can’t afford to let your temper get the better of you.

Reputations can take a lifetime to build and gone in an instant over some misguided social media post.

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Business is cyclical

20 years ago, the hard liquor business was dying and microbreweries were the hottest thing. People may not be aware of it, but for most of the existence of television, the spirit industry had a self-imposed ban on liquor advertising. We all know that beer advertising was a thing, but hard liquor ads never popped, until someone broke the ban. Crown Royal started advertising on TV in 1996 and the spirit industry is doing quite well. Just asked celebrities such as George Clooney and Sammy Hagar about how profitable the business is now and the beer industry, like an old Bud, is flat.

What does my history of the liquor business means is that not only is business cyclical, there can be game-changers that could decimate or turnaround the industry.Another stock market crash will hurt the business, a law change that curtails the role of some plan providers may hurt as well. Other changes could have a beneficial impact on the business. Nothing is stationary forever, this business like every other business, changes.

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The Rosenbaum Law Firm Review

My latest newsletter can be found here.

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The future in litigation might be an arbitration provision

The fascinating part of ERISA litigations is the changing law and viewpoints. To combat the rising tide of litigation, some companies have included arbitration provisions in their Plan document. That means participants can’t adjudicate their claims in court, they must in arbitration.

While being originally against, the Nine Circuit in Dorman v. Charles Schwab only covers that circuit; it does gain insight that arbitration provisions in a plan document may serve as a safety valve to limit litigation expenses and arbitrate disputes through binding arbitration.

I’m not suggesting that every plan sponsor adopt one in their plan document since again, it’s the Ninth Circuit, but it may give us some insight that it will become more popular and more acceptable.

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These Reasons Alone Aren’t Reasons To Hire A Plan Provider For Your 401(k) Pla

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

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The Real Fiduciary Threat For Smaller 401(k) Plans Is A Government Audit

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

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Don’t bill for someone else’s work

You’ve got a lot on your plate as a retirement plan provider and the last thing you need is more headaches. So don’t add to your workload and headaches by deciding to bill for the work of another provider.

I’m an ERISA attorney and if I refer a plan sponsor to a third-party administrator (TPA), I’m not going to bill for that TPA’s work. Your job is to provide the best service for your client, your job isn’t to be the billing office of another provider. Forget about the accounting aspects of it, what if the other provider doesn’t provide the work promised? Are you know going to have to refund money that was never yours, to begin with?

The road to hell is paved with good intentions and nothing good could come by doing another provider a solid by acting as their billing office.

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The Sample QDRO

It’s funny in a sense that the people who should be most experienced with Qualified Domestic Relations Orders (QDROs), many divorce attorneys, don’t seem to know how to draft a QDRO. They try to seek guidance from the folks who have the least amount of information about them: plan sponsors.

Rather than bothering your third-party administrator or an ERISA attorney, who might charge you for one, get a sample QDRO to get the ball rolling for the divorce attorney, the payee, and the alternate payee. If you need a sample QDRO, contact me, no charge.

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