The Rosenbaum Law Firm P.C. Blog

When prospecting potential clients that are considering a new 401(k) plan, push those tax credits if they qualify. The SECURE Act made some significant changes and upgrades, that they should be considered and discussed.

For 2020, the credit is now equal to 50% of eligible expenses, subject to a minimum credit of $500 and a maximum credit of $250 per eligible non-highly compensated employee (capped at $5,000) over a three year period.

To claim the credit, the potential plan sponsor must meet the following requirements:

• The expenses must be related to the plan’s establishment, administration, and/or participant education,
• The client can’t have sponsored a plan at any time in the immediately preceding three years,
• At least one plan participant must be a non-highly compensated employee; and,
• The employer must have 100 or fewer employees with at least $5,000 in compensation in the preceding year.

In addition, there is also a new $500 per year tax credit for up to three years for small employers that adopt new plans that include automatic enrollment.

In any service industry, the quality of service and price can be far and wide. While people say that I focus way too much on the workings on the third-party administration (TPA) business, I have more experience in that field as an ERISA attorney and former employee of a couple of TPAs.

People often ask whether as an ERISA attorney, I work as a TPA as well. I quickly state no, let the folks who know what they are doing do what they are doing. I have too much respect for the work of TPAs to be in that business, which I find gets too much blame and not enough credit, at least for the good ones.

However, looking at the TPA business, I always notice the wide difference in pricing, but more about the wide difference in service. For example, I have a client who clearly was taken advantage of by a TPA that is really in the business of selling insurance, with the administration just being treated as an ancillary service. The clients were sold a couple of life insurance policies that the company could no longer afford with a special sub-trust that the Internal Revenue Service no longer finds special.

I have another TPA looking at the plan, which may or may not charge the same price, but offering an exit plan to get out of the plan that is a half million in the hole. The potential new TPA remarked how the plan should have winded down earlier and wondered why the current TPA/ snake oil salesman didn’t advise the same. It’s hard to when you really aren’t in the TPA business and are really in the insurance selling business because terminated plans don’t pay administration fees or pay premiums.

When it comes to finding the right TPA, price is important, but the quality of service is the difference maker to me.

As an ERISA attorney, I get asked to review new retirement plan tools and plan provider marketing tools. If the product is crap or a complete copy of what is already out there, I’m not going to recommend it.

WealthPRIME has developed a software and website that is a great plan provider tool when it comes to plan design. WealthPRIME launched a new retirement plan-focused software solution that allows financial professionals to attract high-net-worth individuals and small business owners, seamlessly track leads, and convert those leads with a highly customized, data-backed proposal system. In English, it allows you to plug in a prospect’s situations and develop a plan contribution formula that fits the prospective client’s needs. The weeks of waiting for a basic plan design from the actuary can be a thing of the past.

I tried out the website in a demo and I think if you are in the retirement plan sales business and wanty a tool to illustrate to clients what you can do on the plan design front as soon as possible, WealthPRIME might be the newest tool you want and need. Dan Harding, WealthPRIME’s founder will present at That 401(k) National Conference at Walt Disney World, March 10-11 and I’ve been advised that attendees will get a peek at what the site is all about.

Northrop Grumman Corp. agreed on a tentative settlement regarding their 401(k) plan by offering to pay $12.4 million.

The plaintiffs in the case accused the company and its fiduciaries of allowing “unreasonable” record-keeping fees. They contended that the fiduciaries failed to remove an underperforming emerging markets equity fund from the plan lineup.

The case was settled minutes before it would go to trial. Renowned litigator Jerry Schlicter represented the plaintiffs.

The Internal Revenue Service (IRS) has established a process that requires all retirement plan sponsor who have adopted a pre-approved retirement plan to restate their plans once every six years to reflect changes in the Internal Revenue Code and IRS regulations.

All pre-approved defined benefit pension plans must be restated by April 30, 2020, to remain in compliance with the Code and IRS regulations. The name given to this requirement is known as the PPA Restatement. The PPA Restatement is named after the Pension Protection Act of 2006 which was passed by Congress. A restatement is a re-writing of the Adoption Agreement.

It incorporates changes from any plan amendments that may have been adopted since the last time the document was prepared. Failure to restate the document before the deadline can result in disqualification of the plan and/or significant penalties.

If you are a defined benefit plan sponsor or know one that needs a restatement, you know where I am.

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

A report by Cerulli on the future of the retirement plan business had a startling number. The report showed estimates that the 10 largest recordkeepers will represent more than 75% of record kept 401(k) assets by year-end 2019. That’s a startling number if you happen to be a recordkeeper or TPA. The gist of the report is that recordkeepers and TPAs need to get big or get smart.

Unless you’re in a position to start buying smaller competitors, you’re going to need to get smart by advancements in technology, marketing, and thoughts outside the box to remain competitive in the business. You don’t have to compete with the big boys and girls in numbers to remain competitive, you need differ5entiuators in your approach that will allow you to stand out. Otherwise, you’ll be the next local hardware store or Rickel’s or Channel when Home Depot started expanding.

I have life insurance and it’s an important financial tool to protect your loved ones. I’ve never been a fan of maintaining a life insurance policy within a qualified plan and that bias against it is because of the compliance errors I’ve seen with these plans.

I’m not going to stress the defined benefit plan issues when the formula and required contribution is used solely to pay for life insurance premiums (which becomes a huge problem when the plan sponsor has to freeze the plan while experiencing economic stress). I’m going to stress the problems I see with life insurance on a 401(k) plan.

Too many 401(k) plans have a benefit, rights, and features discrimination problem when they only allow that insurance window for owners of the company. In addition, another problem is with the titling of the insurance policy, especially when its totally in the name of the insured. That’s a problem because the transaction may be labeled as a prohibited transaction if there is nothing that specifies that the policy is part of the plan. Unless you’re developing a 401(k)m insurance program with someone with the experience in the subject area, you’re going to have issues that threaten the qualification of the plan.

National Rural Electric Cooperative Association (NRECA) is a national service organization that represents more than 1,000 rural electric cooperatives around the United States. NRECA sponsors a 401(k) multiple employer plan (MEP) and is a target of a class-action lawsuit.

The court made a big decision and expectations should be high for a settlement. U.S. District Judge Liam O’Grady of the Eastern District of Virginia has found that the complaint alleging prohibited transactions against fiduciaries of the plan “contains sufficient well-pleaded facts to survive a motion to dismiss.”

I read the complaint and I find it troubling. The whole purpose of a MEP is low cost. The plan has almost 70,000 participants and $10 billion in assets. The complaint alleges that the plan’s administrative costs have increased each year since 2013, and the 2017 rate of $404 per participant is a 50% surge from the 2013 rate. That is eye-popping and a review of the Form 5500 shows a lot of providers involved for one single plan.

One aspect of the SECURE Act that many commentators failure to note is that it’s mor expensive to file a late Form 5500.

The Internal Revenue Service (IRS) penalty before the SECURE Act was $25 a day, up to a maximum penalty of $15,000 per plan year. The SECURE Act has increased the IRS penalty to$250 a day, up to a maximum penalty of $150,000 per plan year.

The Department of Labor’s (DOL) fees are even higher with the penalty for a late filer being $2,194 per day (adjusted for inflation for penalties assessed after January 23, 2019), with no maximum.

To be eligible to reduce these potential penalties through the DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP), you will have to file the application as a plan sponsor. If the plan is under IRS or DOL audit, you are going to find yourself no longer eligible for the DFVCP.