The crypto waiting game

With so much talk about crypto and 401(k), it’s pretty simple as to what plan sponsors should do: nothing. While this may be a buying opportunity for plan sponsors, you still have the Department of Labor warning plan sponsors that they will conduct investigations for plan sponsors that offer it to plan participants.

While litigation and congressional pressure may force the DOL to change their view, it’s ridiculous for any plan sponsor to consider it now.

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Right about Auto-Enrollment, I got that going for me

People are flawed, except for saints and Popes. One of my many flaws is that I enjoy being right. I love predicting things and being right (such as the end of revenue sharing, and a former employer going out of business within 5 years by closing up within 2). But I will admit when I’m dead wrong (Apple opening up their stores wasn’t a bad idea and Amazon could sell stuff beyond books, CDs, and DVDs). One thing I was right about was automatic enrollment.

When I first heard of automatic enrollment, it was called a negative election and it was only recognized through some Internal Revenue Service guidance to a specific plan sponsor in around 1999. I hated it and the reason I hated it was because I saw it as something out of the Communist Soviet Union (I was an old red baiter). The negative election was a gimmick for a plan sponsor to goose up their deferral rates for non-highly compensated employees because the guidance and zero fiduciary protection because the 401(k) plan was an ERISA 404(c) plan meant that any negative election money was doomed to cash or stable value since the participant never directed their investments. My view of the negative election changed with the implementation of automatic enrollment in the Internal Revenue Code as part of the Pension Protection Act of 2006. I felt that the reliance on a Qualified Default Investment Alternative for fiduciary protection meant that participants automatically enrolled could have an account balance that just wouldn’t sit in cash or cash equivalent. As a highly opinionated ERISA attorney for a producing third-party administrator (TPA), I reached out to my bosses and some of the other decision-makers on why we should let our clients know why auto-enrollment was important. I felt it was an effective way to increase participation and to increase assets under management. I jokingly say that until this day, I never received a response to my email.

Studies have consistently shown that adding automatic enrollment to the plan increases participation in the plan and increases the retirement savings of plan participants. It’s more than a gimmick to help with testing, it’s an effective way to get employees involved in saving for retirement that they never would have done on their own.

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Striving for savings for participants is a never-ending battle

Working hard to get participants saving is a never-ending battle. Just look at Vanguard’s 2021 How America Saves Survey to see how much money the average American in their 30s has saved up in their 401(k) account. Here’s what they found:

  • Average 401(k) balance of ages 25–34: $33,272 (average); $13,265 (median)
  • Average 401(k) balance of ages 35–44: $86,582 (average); $32,664 (median).

That’s not a whole lot of money and just eye opening. We clearly need to do more for participants to save more.

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How to Choose Your Retirement Plan Providers

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

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Multiple companies and plans, avoid the sloppiness

With small and medium-sized companies, multiple plans operated by multiple owned companies that are part of a controlled group, usually create a huge mess.

There may be a reason why similarly owned companies may operate more than one plan, It’s important to realize what that reason is. Sometimes, there are multiple plans for apparently, no reason. In addition, there may be companies that haven’t formally adopted a plan that they participate in.

As a plan sponsor, you need to identify the plans you have, and the companies involved. Too often, these situations lead to a tangled web and it’s your job to untangle them.

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That eligibility issue

I always say that the reason I don’t have employees is because I was an employee too. One f the frustrating things was changing jobs. There was a two yearsstretch where I went through a couple of employers.

I will say that when considering a job offer, one of the big issues was 401(k) eligibility. Whether it was 6 months or a year, requiring me to stay out of a 401(k) plan was a big deal. As an employer trying to recruit employees, I would recommend considering eliminating the eligibility requirement for salary deferrals, while keeping it for employer contributions. With deferrals, you can still test the plan as if there is still a one year eligibility reuirement. I understand that turnover would mean more smaller account balances with immediate eligibility, but it serve as a huge recruitment tool, especially if you employe people making $75,000 or more.

There are a lot of reasons why people may reject a job offer, I just doin’t think eligibility for 401(k) salary deferrals should be one of them.

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Don’t exclude bonuses from definition of compensation

Maybe it’s the Larry David in me or the fact that I never had a job where I got a bonus, but excluding bonus from the definition of compensation is more trouble than it’s worth.

While I understand that plan sponsors may want to exclude bonuses from the definition of compensation because they don’t want to offer employer contributions on the bonus, I just think it’s just a pain. Why? Excluding bonuses would take the compensation definition outisde of safe harbor Section 414(s) compensation, which would require testing to determine whether the definition discriminates in favor of highly compensated employees.

While most testing I’ve seen for compensation has passed, I just think excluding bonuises involved more work and just not worth it, to save a few dollars.

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The silent treatment

As we are reminded daily by sad news that life is too short, I think it’s important to tell people that you love them. On the flip side, if people tick you off, tell them. Giving people the silent treatment or ghosting them because your feelings are hurt is kind of juvenile and passive-aggressive.

Many times, you might be offended by people and they may have no idea because they are unaware. I think in developing relationships with people, I think it’s important to let them know where you stand, rather than them following up with you on multiple occasions and not getting word back.

People aren’t mind readers and if you’re interested in maintaining a relationship, the silent treatment just doesn’t work.

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Falling stock market is an opportunity

There were times in my life when I needed help and just didn’t get it. One of my favorite quotes based on those kinds of experiences is: “I needed your help, you weren’t there, and I no longer need your help.”

With falling stock markets, this might be the time to pounce as a financial advisor. I’m sure there are plenty of financial advisors that are incommunicado with their plan sponsors. When you have returns that are -20% or more, you have anxious plan sponsors and plan participants who might be freaking out if they check their balance every day.

So with advisors missing in action, this may be the opportunity to be there and contact 401(k)plan sponsors and be that reassuring voice that the incumbent financial advisor should be.

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Bill introduced to add Bitcoin to 401(k)

I keep on saying that timing is everything and with Bitcoin falling about 60% off its high, this isn’t the time for adding it to 401(k) plans.

In May, Rep. Byron Donalds (R-FL) introduced a bill that would allow Bitcoin and most other financial assets to be included in 401(k) retirement plans.

The bill is the House version of the Senate’s Financial Freedom Act of 2022. The original bill featured identical language and was introduced by Sen. Tommy Tuberville (R-AL).

Both bills were put forward in response to Department of Labor guidance in March. That guidance advised plans against allowing crypto in 401(k)s.

This being an election year and Democrats in control of both houses, for now, I don’t expect any chance for these bills this year.

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