The Rosenbaum Law Firm P.C. Blog

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

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

A lot of the bundled third-party administration (TPA) firms are offering free distribution packages to participants who need a distribution because of Coronavirus. They can afford to because their TPA business has only been ancillary for the distribution of their mutual fund or insurance-based. Products. As an unbundled TPA, I suggest you don’t.

You need to be compensated for your time and no matter what people may think, it is a lot of work. Why waive a fee for people taking money on plans that will negatively impact your business? More importantly, it’s a lot of work and you need to be compensated for your time. My point is that when you give away free services, you are showing that your services essentially have no value. In this day and time when many of us are struggling, I don’t think it’s wise to offer free distributions.

I remember when the chicken littles of the 401(k) business insisted that when fee disclosure regulations were implemented, plan sponsors would terminate their 401(k) plans rather than deal with the headaches of benchmarking fees. As we know, that didn’t happen.

There are already claiming that hundreds of thousands of employers will terminate their 401(k) plan as a result of the Coronavirus pandemic. The sad fact is that there will be many employers that will go out of business, which will necessitate the termination of 401(k) plans. Will it be 50,000? 100,000 or 250,000? Nobody knows. What we do know is that we won’t know until the social distancing and work from home rules end. What we also know is that the 401(k) industry will be around for many years to come and we will navigate the challenges that come from the pandemic and its ending.

With participants being allowed to get a Coronavirus related distribution under the plan if they were affected by it and if your plan offers it, keep in mind what it might do with their retirement savings.

Accessing retirement plan assets for today’s needs is what I call leakage and leakage isn’t good for your plan (as it depletes assets and pricing depends on assets) and it’s certainly not good for your employees.

While people certainly have needs, the other problem besides invading retirement plan assets for today’s needs is that the market has gone south as well. Taking out retirement plan assets when the market has gone down 20-30% is even worse. Try communicating with participants about the issues surrounding using retirement plan assets today and if they can avoid it, avoid it. If they can’t, at least you had the discussion.

When I was in college in the early 1990s, I was heavily involved in student politics. I would go and buy things that made me look important even when I really wasn’t. I got the beeper that no one really called and I had one of those Day-Timer organizers.

People who grew up today have their IPads, but the Day Runner was the IPad of its day because it would include my contacts, notes, calendar of events, etc. I used to call my leather Day-Timer, the “football” in honor of the military briefcase that has all the nuclear weapon launch codes that a military attaché was attached to by handcuffs. Again, sounding more important than I really was.

Plan sponsors need their own “football”. They don’t need nuclear launch codes, but they do need to keep copies of their plan documents, fiduciary meeting minutes, investment policy statements, investment education materials handed out to participants, fiduciary bond, liability insurance binder, enrollment meeting attendance sheets, and valuation reports. Thanks to technology, they don’t have to be in a Day Runner or a binder, they can be electronically saved after being scanned. Since the paper doesn’t too well to paper, fire, and the trash, a plan sponsor should save all plan information to a USB flash drive and some sort of cloud. This “football” will make sure the plan sponsor has all the information they need to defend themselves in an audit and/or litigation.

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

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

With That 401(k)National Conference being held at the start of the Coronavirus Pandemic, we were still fortunate to have The Retireholi(k)s appear. With Corona in hand, I was happy to be a guest.

Video of their broadcast can be found here: https://vimeo.com/402229550

One of the things I dislike the most is owner-only defined benefit plans where the minimum contribution is tied fully to the funding of a whole life insurance policy.

Why do I hate it? It’s because when times are bad and these owners have to cease accruals in their plan because they can’t afford it, they end up taking a massive financial haircut by surrendering their policy. It’s one of the great abuses in the sales practices of the retirement plan industry. No employer contribution should ever be tied dollar for dollar with an insurance product of any kind. All it does is limit a defined benefit plan sponsor when times are tough and the insurance agent gets the commission.