When I was 13 and I had my Bar Mitzvah, I plucked down about $2,000 in 1985 money for a state-of-the-art Apple IIe with a monochrome monitor. One of the first pieces of software I bought was that top desktop publishing software known as Print Shop. I bought it through mail order (yes, there was life before Amazon.com) for about $30 and I remember that my wealthy uncle bought the very same program for my cousin for about $60. My uncle really thought nothing of the fact that he bought the very same program at double the price I paid. Sometimes people like to overpay.
I have a mantra that I hate to pay retail. I love a good sale. Yet there are some people who thumb their nose at paying at a discount or going to an outlet store. Somehow, it isn’t right for these people to pay less.
The problem is that plan fiduciaries such as plan sponsors and trustees don’t have that luxury. With their fiduciary duty on the line, plan sponsors need to pay reasonable plan expenses for the services involved. Plan fiduciaries can only determine whether the fees they pay are reasonable by shopping their plan to other service providers. If they don’t shop around and overpay in fees, they may subject themselves to liability from plan participants. It should be noted that plan sponsors don’t have to pick the cheapest providers because often, there is a reason why some providers are cheap.
How to determine whether a plan sponsor is paying way too much? Like Justice Potter Stewart would say, I know it when I see it. I have seen the information shown on Form 5500 or a fee disclosure form. Whether it’s the plan sponsor paying a Big 4 accounting firm $54,000 for a limited scope audit or another plan sponsor paying a broker 60 basis points (.60%) on a $14 million 401(k) plan, there are plan sponsors seriously overpaying for services. Fee disclosure has made it more apparent that plan sponsors are overpaying, but again, the only way to determine that is if plan sponsors survey the 401(k) marketplace to see what other plan sponsors are paying.
I saw a recent article by Matthew Breunig, suggesting that instead of cutting Social Security, we should end the tax breaks for 401(k) plans. He claims that the tax advantage of IRAs and defined contribution plans is $371 billion and should be sacrificed because the bulk of the money belongs to rich people.
That’s simplistic because that’s if you really believe someone making over the highly compensated employee limit of $135,000 is rich, well then, you don’t know the cost of living in New York, Boston, San Francisco, and Los Angeles.
The problems with Social Security have nothing to do with 401(k) plans. The trust fund doesn’t exist, it’s just an IOU from the Federal Government, so the money was never invested like with a 401(k) plan. In addition, people live longer. I know infant mortality was high, so the life expectancy in 1930 for women was 62 and 58 for men when it took age 65 to get benefits. People live longer these days and that has hampered the system. But does cutting back the 401(k) benefits, help social security? It probably won’t and any serious discussion on saving the system will be kicked further down the road for our kids and grandkids to handle.
They claim that with the change in how we count participants, there will be 20,000 fewer audits. By counting account balances instead of those that are just eligible, it looks like CPAs would see a retraction of their business of auditing retirement plans.
Yet, with increased coverage requirements by states for employers to offer plans, mandated use of automatic enrolment for new plans, and pooled employer plans, I don’t know if that 20,000 reduction will be accurate, in the long term.
The 2023 Form 5500, which will be filed beginning in mid-2024, includes the following changes:
- A consolidated Form 5500 reporting option for certain groups of defined contribution retirement plans, improved reporting by pooled employer plans and other multiple-employer plans;
- A change in the participant-counting methodology for determining eligibility for simplified reporting alternatives available to small plans, which are generally plans with fewer than 100 participants, which means only counting participants with account balances;
- A breakout of reporting on administrative expenses paid by the plan on the plan’s financial statements;
- Changes in financial and funding reporting by PBGC-covered defined benefit plans;
- Added Internal Revenue Code compliance questions to improve tax oversight and compliance with tax-qualified retirement plans;
- Technical and conforming changes as part of the annual rollover of forms and instructions;
- Technical adjustments that address certain provisions in SECURE 2.0 Act of 2022 regarding 403(b) multiple employer plans, including:
- pooled employer plans;
- minimum required distributions;
- and audit requirements for plans in defined contribution group reporting arrangements.
My latest article on JDSupra.com can be found here.
My latest article on JDSupra.com can be found here.
Social media is one of the great tools that I needed to start my own ERISA practice. While my Twitter handle can attract some interaction with non-retirement folks, I’m always mindful of what I post and how I handle myself. One thing I’ve never done is troll people in the retirement plan business over their comments. It would make me look bad, and reflect poorly on me.
I will say with the 13 years I’ve been online on LinkedIn with my own firm, I have had maybe two trolls. One was a guy who wasn’t in the 401(k) plan business who said that people like me and James Holland were selling fear for our services because we were for fee transparency. The other was a small, local third-party administrator (TPA) who seemed to have an issue with almost everything I’d post. I’m not talking about basic disagreements over opinion, I’m talking about someone trying to engage me in some sort of social media fight.
I see fewer of these fights these days and I’m glad for that because it means fewer providers disrespecting themselves by posting comments that make them look bad.
When I was at that semi-prestigious law firm on Long Island, I became convinced that I could draw business from around the country by creating content via social media that would allow me to develop relationships with financial advisors, third-party administrators, and plan sponsors. The managing attorney (who has since retired after destroying the firm) couldn’t disguise her disdain for social media by ridiculing her husband, who was successfully doing it for her own practice. It took me to start my own practice to be able to use social media effectively and for better or worse, it’s worked well since 2010.
While some plan providers claim it’s a waste of time, I disagree and a recent survey backs that up. Registered investment advisers are increasingly landing clients via social media marketing, according to recent research. The number of advisers converting social media leads to clients continued to trend up in 2022 to 41% of those surveyed, a 1% increase from last year, but up from 34% since 2019, according to a survey conducted by Broadridge.
The stock market went down in 2022, so no surprise, so did 401(k) account balances.
According to Vanguard’s 22nd annual “How America Saves” study, the average 401(k) balance was $112,572 at the end of 2022 — a 20% drop from 2021.
I’ve been through some bear markets and I’ve seen worse results over the years.
As Bitcoin starts inching back up, I’m in the black again and expect more clamor for crypto options in 401(k) plans.
Senator Tommy Tuberville, R-Alabama, reintroduced legislation to create a law, the Financial Freedom Act which calls to roll back any Department of Labor (DOL) guidance that limits the type of investments self-directed 401(k) account investors can select through a brokerage window.
Tuberville’s bill is trying to reverse 2022 guidance in which the DOL warned that fiduciaries could be liable if offering cryptocurrency through a participant-directed option.
With a Democrat-controlled Senate with no Democrats co-sponsoring the bill and a Democrat-controlled White House, I expect this to go nowhere.