The Rosenbaum Law Firm P.C. Blog

In life, choice is usually a good thing. However, when it comes to daily valued 401(k) plans, too many choices isn’t a good thing. It sounds counter-intuitive, but too many choices offered to plan participants is usually a mistake.

Offering participants the right to self direct their own 401(k) account sounds like a great idea because plan sponsors are giving a plan participant a choice in shaping their retirement. The problem with these choices is that plan participants get paralyzed by being offered too many choices; they tend to get overwhelmed. For example, people assume offering so many different mutual funds on a plan’s investment menu is the way to go. However, studies have shown that the more investment options offered under the plan, it tends to actually depress the deferral rate of plan participants. Offering 57 mutual funds on a lineup sounds like a good idea on paper, but it overwhelms plan participants to the point that they don’t want to participate and defer their income.

The same can be said by offering participants a self-directed brokerage account. Allowing plan participants the right to a brokerage window within the 401(k) plan allows them to purchase stocks and other investments apart from the typical mutual fund menu offered under a 401(k) plan. Again, a study has shown those plan participants who use a brokerage window tend to have a worse rate of return on their 401(k) account than those participants who stick to the core fund lineup.

CitiBank used to have a jingle in their ads in the 1980s that “Citi never sleeps, CitiBank”. While most of us are hunkered down thanks to this Coronavirus epidemic, it doesn’t mean that as the plan sponsor, you can just fall asleep.

As a plan sponsor, you still have to exercise your fiduciary duty prudently. You still have to deposit salary deferrals promptly and you have to make sure that plan sponsors are informed as they are legally required.

As long as we don’t receive guidance from the Internal Revenue Service or Department of Labor top the contrary, to quote Bill Belichick: “do your job.”

Over the years, I worked with many organizations starting back with student political organizations and the school paper at Stony Brook. This includes actual businesses, civic and religious organizations. Many of these businesses and organizations thought that advertising was the be-all and end-all in getting new business for these companies and members for these organizations. I even designed and wrote copy for these ads.

The problem with advertising is that it’s not a be-all and end-all to help a business that’s struggling or an organization that wants members. Advertising can never fix what troubles many businesses and organizations and that’s culture.

If you’re a business with a culture of poor customer service, advertising won’t fix that. If you’re a civic organization and you run it like an exclusive clique while not interacting with new members, advertising won’t fix it.

As a retirement plan provider, you need to identify the issues as to why business isn’t growing because advertising may help, but it won’t fix the problems that might ail your organization.

I was a volunteer and officer for an organization where I stated that the leadership (not including me) was stuck in 1986.

What it meant was that this leadership couldn’t adjust to the current age when it came to recruiting new members and raising contributions. What worked well 30 years ago doesn’t mean it will work today.

I worked for a law firm that acted as if time stood still. I tried to use social media to generate discussions that would help me net clients, but the Managing Attorney didn’t get it even though her husband was doing the very same thing for his own law practice. She actually acted as if her husband was doing something that was embarrassing.

The point here is that the retirement plan business continues to evolve. Retirement plan rules change; the attitudes of plan sponsors change. The opportunity to get new clients changes. You need to be open to what’s new out there and determine what will work and what still works.

By the way, the best thing to happen in 1986 was the New York Mets. Thank you.

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

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

My grandmother always said that life doesn’t go to plan. She said that years before her death and years before I decided to host a national conference. When you start planning a national conference 10 months in advance, you don’t think it was going to be impacted by a pandemic. Attendance was on the low side, but I was able to hold it before everything shut down. I hope NAPA and other 401(k) industry conferences can take place and I wish you all the best of health.

Life throws you a curveball at times in business and you have to learn how to hit the curve or you will strikeout. You have to roll with the punches. Whether it’s the market or changes in the industry or bigger competition, you have to deal with when your plan doesn’t go through the way you thought it would.

The biggest change with the SECURE Act is that long term part-time employees will be eligible to partake n the deferral component of the plan. Employees who complete 500 hours of service or more for 3 consecutive years will be eligible, even if the plan’s eligibility had previously excluded them.

Plans have to start counting hours for these part-time employees in 2021 with the idea that these part-time employees will start participating in 2024.

The cost of this new inclusion will be that some plans will have to get an audit for their plan, which they may not have had if there was no change. Generally, plans with at least 100 participants on the first day of the plan year must engage an independent accountant to perform an audit of the plan’s financial statements. The audit report, financial statements, note disclosures, and supplementary schedules are filed as an attachment to the plan’s Form 5500 filing. A transitional election is available that allows growing plans to postpone the audit if the participant count is between 80-120 on the first day of the plan year, and the sponsor elects to continue filing a Form 5500 for the same size plan as they did in the previous year. The problem is that the change allowing part-timers to partake in the plan may make certain plan sponsors crossing that 120 threshold. That’s a cost that will only start in 2024, but that is something to consider.

As I’ve said, plan provider mergers will continue and have sped up ever since fee disclosure regulations were implemented in 2012.

Aon and Willis Towers Watson announced a plan to merge in a reported $30 billion all-stock transaction, resulting in a combined equity value of approximately $80 billion. The combined firm anticipates savings of $267 million in the first full year of the combination, reaching $600 million in the second full year, and a full $800 million in the third year. In English, that means people will lose jobs where its duplicative between the two companies.

I wasn’t around the Spanish Flu epidemic. My grandfather was and his older sister died of it at age 18 in 1918. This coronavirus isn’t as deadly as the Spanish Flu and we have the technology to limit the suffering and the deaths. That is of little solace for us with kids who are not in schools, for us who know have to work from home, and for the events that are going to have to be canceled.

What we need to do is to keep things in perspective. We will fare far better than those who went through the Spanish Flu and the bubonic plague. We live in a country with the resources to combat a pandemic, we just have to be careful and vigilant. The 401(k) industry will probably suffer short term in terms of stock market losses and potential plan sponsors not having the biggest or the stomach in starting a retirement plan.  We’ve been through similar challenges in the past with 9/11 and the housing mess. We’re dealing with a lot on our plate, but I think we will navigate this challenge and we will end up being stronger for it.