The Rosenbaum Law Firm P.C. Blog

There are many third-party administrators (TPAs) that I know based on working with them or based on reputation. Working with TPAs and word of mouth about them are excellent barometers about their capabilities.

Recently I have heard about a certain new TPA. New in the sense that I never heard of them before and the only reason I’ve heard of them is that they have made a splash on the web and social media. An advisor-client of mine advised me of the problems with the TPA in its ineffectiveness in basic compliance tasks, as well as some strange contractual language as it pertains to terminating the TPA’s services.

I like TPAs that are media and social media savvy, but they have to follow that savviness with competent services,.

Trader Joe’s successfully beat back a class action 401(k) lawsuit. When reading the Judge’s opinion, it was a clear smackdown of the Plaintiffs’ complaint.

When I put Trader Joe’s 401(k) plan in the Google machine, I could find no articles on Trader Joe’s winning their case. However, I did see plenty about the filing of the lawsuit. It reminds me of the newspaper articles with false claims and small retractions, days later. It’s the same with 401(k) lawsuit against plan sponsors and plan providers, the media likes to report the sizzle and report the steak months later in smaller print when the public has moved on from the case.

You will see multiple 401(k) cases against large plan providers that get plenty of attention but get ignored when dismissed because the pleadings failed to prove that one of these providers was a fiduciary.

So when you read a headline that a plan provider or plan sponsor, remember it’s just a headline until the case is settled or decided on its merits. Anyone can sue anyone, but not anyone can win without any facts.

EBSA Notice 2020-01 issued by the Employee Benefits Security Administration (EBSA) provides relief on deadlines for providing certain participant-level notices and disclosures and providing blackout notices, as required by ERISA.

EBSA Notice 2020-01 provides relief from the deadlines for furnishing certain required notices or disclosures to plan participants, beneficiaries, and other persons that are due to be provided between March 1, 2020, and 60 days following the announcement of the end of the COVID-19 national emergency.

This relief applies to any notice or disclosure required to be provided to plan participants, beneficiaries, or other persons by ERISA over which the Department of Labor (DOL) has control. In order to qualify for this relief, the plan must have acted in good faith to furnish the notice or disclosure as soon as administratively practicable under the circumstances. The guidance specifically identifies “good faith” acts including using electronic means of communicating with participants that may have effective access to electronic media, including via email, text message, and websites

This relief extends to the following ERISA disclosures: Summary Plan Descriptions (SPDs) and Summaries of Material Modifications (SMMs); Annual Funding Notices; Summary Annual Reports (SARs); QDRO notices; Participant Disclosures in Connection with a Participant-Directed Retirement Plan including General Plan Information, Plan Fee Information and Comparative Designated Investment Alternative Information; Qualified Default Investment Alternative (QDIA) Notices; Mapping Notices; Periodic pension benefit statements required by ERISA; Notices of Adverse Benefit Determinations and Appeals:  and Blackout Notices (see my other article).

The notice provided no further extension of the annual Form 5500 deadline; which is July 31st.

BSA Notice 2020-01 from the Employee Benefits Security Administration (EBSA) announced important relief for plan sponsors in connection with authorizing plan loans and distributions

The guidance does provide that if an ERISA- plan fails to follow procedural requirements for plan loans or distributions under the terms of the plan, the Department of Labor (DOL) will not treat it as a failure if the failure is solely because of Coronavirus; the plan administrator makes a good faith, diligent effort under the circumstances to comply with those plan requirements; and the plan administrator makes a reasonable attempt to correct any procedural deficiencies as soon as practicable. The relief for verification procedures is limited to those procedures required under ERISA and within the jurisdiction of the DOL.

The guidance also provides some important relief from ERISA’s fiduciary requirements in connection with participant loans granted under the CARES Act such as the increased limits and the one-year deferral of payment for existing loans. The relief provides that DOL will not treat any fiduciary as violating ERISA, including the “adequate security” and “reasonably equivalent” basis requirements of ERISA section 408(b)(1) solely because –the fiduciary made a loan to a qualified individual during the loan relief period in compliance with the CARES Act and related guidance, or a qualified individual delayed making a loan repayment in compliance with the CARES Act and related guidance.

BSA Notice 2020-01 from the Employee Benefits Security Administration (EBSA) announced important relief for plan sponsors in connection with authorizing plan loans and distributions

The guidance does provide that if an ERISA- plan fails to follow procedural requirements for plan loans or distributions under the terms of the plan, the Department of Labor (DOL) will not treat it as a failure if the failure is solely because of Coronavirus; the plan administrator makes a good faith, diligent effort under the circumstances to comply with those plan requirements; and the plan administrator makes a reasonable attempt to correct any procedural deficiencies as soon as practicable. The relief for verification procedures is limited to those procedures required under ERISA and within the jurisdiction of the DOL.

The guidance also provides some important relief from ERISA’s fiduciary requirements in connection with participant loans granted under the CARES Act such as the increased limits and the one-year deferral of payment for existing loans. The relief provides that DOL will not treat any fiduciary as violating ERISA, including the “adequate security” and “reasonably equivalent” basis requirements of ERISA section 408(b)(1) solely because –the fiduciary made a loan to a qualified individual during the loan relief period in compliance with the CARES Act and related guidance, or a qualified individual delayed making a loan repayment in compliance with the CARES Act and related guidance.

Trader Joe’s successfully beat back a class action lawsuit and it confirms what I have been saying over the abundance of 401(k) excessive fee cases in federal courts. 

Trader Joe’s was a prime target of ERISA litigators has it has over $1 billion in plan assets and over 40,000 participants. The problem with this case, as with many other recent cases were the pleadings.

The judge in this California federal court case was that merely theorizing that Trader Joe’s had high recordkeeping fees wasn’t enough. “It is Plaintiffs’ obligation to plead facts that create more than a ‘sheer possibility that [the Plan fiduciaries] ha[ve] acted unlawfully’ to make a plausible claim for relief and to survive a motion to dismiss.” Judge Percy Anderson wrote, He also noted that the “Plaintiffs’ guess that the Plan pays $140 per participant for recordkeeping fees has ‘no factual basis,’ and Plaintiffs admit they do not actually know how much the recordkeeping fees are.”

As for Trader Joe’s not benchmarking recordkeeping fees by bidding the plan out, the Judge noted that ERISA doesn’t require periodic competitive bidding. Judge Anderson noted that “….Plaintiffs do not allege any facts suggesting a competitive bid would have benefitted the Plan or the Plan participants,” as Plaintiffs “do not allege any facts from which one could infer that the same services were available for less on the market.”

As for not using cheaper institutional share classes, the Judge issued another smackdown, the Judge ruled that merely alleging that a plan offered retail rather than institutional share classes is insufficient to carry a claim for fiduciary breach. He also ruled that the Plaintiffs alleged no specific facts to suggest Trader Joe’s breached its fiduciary duty of prudence by allegedly failing to offer institutional class shares as opposed to investor class shares.

In a nutshell, citing that a plan is expensive in a civil complaint isn’t going to be enough for a Federal court these days. Plaintiffs are going to have show that excessive fees were an actual breach of fiduciary duty and be more concrete in facts as it pertains to recordkeeping and investment fees. Like Clara Peller said about hamburgers in a Wendy’s ad, ERISA litigators are going to have to show the beef.

My latest newsletter for retirement plan professionals can be found here.

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

My latest newsletter can be found here

When I was at college, I was very involved politically. Someone I met my freshman year at Stony Brook and a friend to this day was someone I met through these political circles and has made a name for himself as a state party chairman in California. One of his pearls of wisdom is “Get Them In Early and Get Them Involved.”

When I started out as an ERISA attorney, I first heard of automatic enrollment in 401(k) plans when it was known as a negative election. Pre-Pension Protection Act of 2006 (PPA), employers could only put that money from participants who were negatively enrolled in some sort of stable investment because there was no QDIA or any relief from liability under ERISA 404(c). Taking money from employees without their consent was something out of the Soviet Union.

After I got older and became less of a red baiter, I finally understood why automatic enrollment can be a good thing after PPA. PPA offered some sort of relief to the employers for liability with QDIA, so participants would be automatically enrolled in a fund that was better than a money market fund. The fact of the matter is that when it comes to 401(k) plans, younger participants don’t defer as much as older participants and if something is not done within the next 20 years, I think you will actually see a negative outflow from 401(k) plans. So I think automatic enrollment can be a tool to increase the size of plan assets, prevent negative outflows, and getting young participants in early. I think if a plan’s financial advisor gives good investment education with one on one meetings, I think it is possible to get these automatically enrolled participants involved by eventually getting them interested in retirement savings, which will get them to affirmatively enroll in the Plan by increasing their deferral rate from that automatic amount. Get them in early and get them involved, automatic enrollment can be that hook.

When I was working for a producing TPA, I suggested that they push automatic enrollment because it would increase plan asset size (which would increase their revenue) and prevent that retirement crisis I see when baby boomers start pulling money out of 401(k) plans, faster than when Generation X and Y participants put money in. Of course, my opinion was ignored. The argument is that employers don’t want the hassle of employees complaining after they were automatically enrolled. I think that employers don’t like the idea of automatic enrollment because they don’t see the benefits of an increased deferral rate for non-highly compensated employees, increased plan size, and adding a benefit to employees who may not be aware of that benefit.

If I was a financial advisor and I got a fee based on plan assets and I wanted to tout my education capabilities, I’d always broach the subject of automatic enrollment. It’s not for every employer, but it should always be a topic for conversation.