Of course, matching contributions are being cut

I always joke that anytime there is a snowstorm, the local channels should just recycle their old stories about how people get prepared for the storm at the local Home Depot or supermarket. The same can be said about articles concerning 401(k) matching contributions and a bad economy. Yes, Virginia, matching contributions get cut when the economy is bad.

Some 12% of employers have suspended matching contributions to their 401(k) plans, and an additional 23% were planning to cut their match or were considering it, according to a Willis Towers Watson survey. A separate survey by the Plan Sponsor Council of America found that nearly 22% of companies with 1,000 or more employees are suspending or reducing matching contributions to 401(k) plans.

Do we know when matching contributions are restored or increased? When the economy is better.

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DOL to allow private equity investments in DC Plans

The Department of Labor (DOL) released some new guidance that might facilitate the inclusion of private equity (PE) exposure in participant-directed defined contribution (DC) plans ERISA.


The guidance contemplates the viability of multi-asset target-date, target-risk, and balanced funds made available on a plan lineup, including as a designated investment alternative.


The selection and monitoring of an investment fund made available in a participant-directed plan are subject to ERISA’s stringent fiduciary duties. This DOL guidance explains how a fiduciary, can select an investment option that has PE exposure. The types of funds the DOL has in mind under the new guidance are those with partial exposure to PE; so that the remainder of the fund’s portfolio would need to have “a range of asset classes with different risk and return characteristics and investment horizons.” The DOL specifically envisions the non-PE asset classes to be both liquid and have readily ascertainable market values, such as publicly-traded securities.


While the DOL guidance may facilitate the inclusion of PE within DC plan lineups in a mutual fund or fund of funds, I don’t think many plan sponsors will pursue it since the exposure is going to be limited to publicly-traded securities and the recent bias for index funds.

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MassMutual considering selling its retirement plan business

According to a report from Reuters, Massachusetts Mutual Life Insurance Company (MassMutual) is exploring a sale of its retirement services division, which has about $175 billion of assets under management and administration.

Sources say that servicing and helping administer 401(k) plans aren’t considered a core business. MassMutual unloaded Oppenheimer Funds to Invesco for $5.7 billion less than 2 years ago.

Since 2012, we have seen quite a few large providers leave the 401(k) business (Hartford, Wells Fargo). I used 2012 as the measuring stick because that is when fee disclosure regulations went into effect and a more transparent and competitive fee landscape has made certain plan providers flourish and many others, exit stage left. We shall see if MassMutual decides to exit the retirement plan business.

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Temporary Relief for Spousal Consent and Notary

The Internal Revenue Service (IRS) is providing temporary relief from the physical presence requirement for witnesses and notaries for participant elections that must be witnessed or notarized.

Notice 2020-42 provides relief for participant elections made from January 1, 2020, through December 31, 2020.

Internal Revenue Code Section 417 does require spousal consent for a waiver of a qualified joint and survivor annuity in a defined benefit plan. The spousal consent has to be witnessed by a Plan representative or a notary public. Also, under Code Section 401(a)(11), spousal consent is also generally required in a defined contribution plan if a participant wants to designate a beneficiary other than the participant’s spouse.

Thanks to the COVID-19 pandemic, the IRS has provided the following temporary relief:

  • Temporary relief from the physical presence requirement for any participant election witnessed by a notary public of a state that permits remote electronic notarization, and
  • Temporary relief from the physical presence requirement for any participant election witnessed by a plan representative.

For a participant election witnessed by a notary public, the physical presence requirement is deemed satisfied for an electronic system that uses remote notarization if executed via live audio-video technology that is consistent with state law requirements that apply to the notary public.

However, in the case of a participant election witnessed by a plan representative, the following additional requirements apply:

  • The individual signing the participant election must present a valid photo ID to the plan representative during the live audio-video conference and may not merely transmit a copy of the photo ID before or after the witnessing;
  • The live audio-video conference must allow for direct interaction between the individual and the plan representative ;
  • The individual must transmit by fax or email, a legible copy of the signed document directly to the plan representative on the same date it was signed; and
  • After receiving the signed document, the plan representative must acknowledge that the signature has been witnessed by the plan representative following the requirements of this IRS notice and transmit the signed document, including the acknowledgment, back to the individual under a system that satisfies the applicable notice requirements under the Treasury Regulations

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Plan Sponsors Need To Vet Any TPA Referral They Get LinkedIn Facebook

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

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Business suicide by social media post is a thing

We live through troubling times and when we live through troubling times, people act very strangely on social media. I will never understand why a business owner will take to social media and crack jokes or make light of very terse political situations.

I’ve seen quite a few businesses implode with quickly developed apologies for social media posts that go wrong. For example, I saw a Maryland seafood restaurant owner with a hastily created (and not wisely) apology for cracking a joke about Black Lives Matters protesters and the welfare/food stamps office. This isn’t the time to be the next Don Rickles or to anoint yourself as a sociology expert.

People are angry and they have a right to be angry, just don’t let a misguided tweet or post make them angrier. I usually have empathy for people, but I have zero empathy for a business owner to weigh in on heavy political matters without the care it requires. As a former associate at a law firm working for an insufferable managing attorney, I nearly got fired for sending out an email to a former client of mine by trying to get their business. So I have zero empathy for a business or business owner that decides to post on social media without thinking of the consequences of what they post.

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They may not like answer, but it is, what it is

When it comes to my law practice, I have an open phone call policy. I entertain phone calls from financial advisors and TPAs around the country and try to help them by answering questions regarding their current clients or potential clients. I don’t charge them for the phone calls because the retirement industry is a close-knit community and it’s all about building relationships.

A few weeks back, I got a phone call from an advisor I know and haven’t heard from for a long time. His client is a professional service practice and their new third party administrator told them they were Top Heavy for 2018 because the old TPA screwed up.

The client is adamant about not paying the top-heavy minimum contribution and the advisor asked what the consequences would be. While not paying the required top-heavy minimum contribution could result in plan disqualification, the Internal Revenue Service is not going to take that action if they catch it on an audit. They will require the plan sponsor to make the top-heavy contribution with some interest and likely pay a penalty. Also, the new TPA will fire this client as a client because no competent third party administrator will work on a plan where the sponsor refused to abide by the rules of qualified plans. Top-heavy contributions, minimum funding contributions, and any other mandatory contribution are like taxes, you don’t want to pay it, but you have to.

So next time your client tells you they don’t want to make a minimum contribution or make a withdrawal that is not allowed or make any action that contravenes the rules regarding retirement plans, tell them they have to play by the rules.

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There is always room to grow

Years ago, a lot of financial advisors weren’t aware of their role as a retirement plan advisor when it came to handling their plan sponsor clients. Most advisors were mailing it in, pocketing the quarterly fee without meeting with the client or by not understanding what the fiduciary process is all about.

Thanks to the Internet and changes in the industry like fee disclosure, I believe that most financial advisors understand that they have a higher duty than their colleagues from their past. While they understand their obligation, many advisors don’t know how to fulfill it.

As part of my practice, I have been assisting advisors in pursuing a role as an ERISA §3(38) fiduciary or by developing a client service agreement that meets the section 408(b)(2) disclosure rules for a flat fee.

 While many advisors around the country reached out to me, I am still amazed at how some still don’t understand their role. I knew a registered advisor practice once and became rather alarmed that they never helped their clients in developing an investment policy statement or assisting in participant education.

So while most financial advisors are educating themselves over many of the changes in the retirement industry, there are still so many financial advisors still unaware of that role. Since most 401(k) plans are participant-directed, picking top mutual funds for a fund lineup is overrated. It’s more about working with the plan sponsor and developing a fiduciary process that will help a plan sponsor minimize their liability under ERISA §404(c).

 So while financial advisors are getting smarter about their role, there is still much for them to learn 

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Saying it’s always been done that way is a cop out

My experience at law school could probably be summed up by one event. For first-year law students, there is an event that everyone participates in and it’s called Moot Court where students argue a fictional appellate case in front of second-year law students acting as judges. The whole idea is to get used to courtroom arguments and the fact that the judges will interrupt you at any point.

For Moot Court, I wore a Flintstones tie. At that time, at age 22, I had a very large collection of Nicole Miller and character theme ties. So when I participated in Moot Court, I was chastised more for my tie and less for my argument. I was told by these “Judges” who weren’t lawyers on how wearing a Flintstones tie was disrespectful to the court. So I was chastised for wearing a fake tie while arguing a fake case in a fake court.

So much of what law school is about and many law firms are all about is the fact so much of what is done is mainly done because it’s always been done that way. The way law school operates, well it was always done that way. The fact my law school didn’t have minus grades (A-, B-, etc.), well it was always done that way. The way my old law firm would bill or conduct themselves in advertising and client recruitment, well it was always done that way.

I guess I am the square peg in that round hole or the turd in the punch bowl because I would hear the same things in the retirement plan business. I remember being laughed at because I said that fee disclosure was inevitable (this was only in 2007) and that failing to disclose revenue-sharing made a third party administrator look crooked even if they weren’t. I was told that this was the practice of TPAs and that this is the way it was always done. I had an argument with a 401(k) salesperson because I thought our “producing” TPA should embrace and push automatic enrollment to increase participation and assets under management.

 If we operate to the belief that things are always done that way, there would still be slavery in this country, and computers would still be using punch cards and transistor tubes. Following the way, things have always been depriving people of the opportunity to progress and to succeed. The most successful people in business have thrived by being game-changers.

In 2012, the retirement plan industry went through overdue and fundamental change and this is because it didn’t have to be the way it’s always been. The retirement plan industry is progressed and grew up (at least forced to by the Department of Labor) in leveling with plan sponsors and participants as to the true cost of plan administration. Many of the practices that were held up as being day to day business such as revenue sharing were phased out and that is because there were individuals and entities (whether governmental or commercial) that spoke up and said that the practices of the retirement plan business of cloaked fees and potential conflicts of interests had to change because some of the behavior would be considered criminal in other industries (anyone hear of payola?). I will never forget that the industry experts that predicted gloom and doom for our business, but yet 8 years later, the industry is still here and thriving.

 I always believe to thrive in business, you need to find a niche and to always be ahead of the curve. When you are developing a new product or a new way to do business in the retirement plan industry, always remember that there are those who will laugh or condemn it because your product or service is not the way things have always been done. A lot of TPAs and advisors did very well by being transparent and competitive in fees before the DOL said they had to and they thrived.

Change can be a good thing, a very good thing, and no one who will succeed in this retirement plan business today by operating in this business as it still was 1995 when daily valued 401(k) plans were still considered in its infancy. Any reasonable society or business doesn’t stand pat, it progresses. So never let them tell you that you can’t do something just because it’s not what has always been done.

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It just doesn’t look right

I am always against conflict of interest, going back to the day pre-fee disclosure when producing third party administrators (TPAs) were not transparent about the revenue sharing they collect. Beyond that, I’m also against anything that may not be illegal but looks wrong. Like I always say, I’m the turd in the punch bowl.

People will say that a plan sponsors hiring their cousin as an advisor doesn’t run foul of the prohibited transaction rules. In my mind, it doesn’t pass the smell test and that any appearance of impropriety, suggests there is actual impropriety. That is why every 401(k) plan sponsors who have their own proprietary mutual funds in their plan are being sued. I don’t think a mutual fund company puts their own funds in the plan to make money, they do it for appearances. The problem is that the appearance to an ERISA litigator isn’t good and they are looking for bug pocket plan sponsors to sue.

The point is that we have a standard of behavior in this retirement plan business and there is nothing wrong with having a higher standard because I believe if things don’t look right, people will have the natural assumption that things aren’t right.

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