The Rosenbaum Law Firm P.C. Blog

As I always say, being a mutual fund company with proprietary funds in their 401(k) plan makes them a target.

Despite winning a motion for summary judgment, Invesco just filed a notice of settlement concerning their 401(k) plan as plaintiffs were allowed to amend their complaint. The court dismissed the complaint but allowed plaintiffs to amend it. The court did cite that 55 to 68% of plan investments were affiliated with Invesco.

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) released its program results for 2019. EBSA’s enforcement and benefit advisor programs recovered over $2.5 billion in payments to plans, participants and beneficiaries. That’s a lot of shekels.

EBSA reported over $2 billion in recoveries from its investigations. Under its Terminated Vested Participant Project, EBSA helped participants collect nearly $1.5 billion in retirement benefits owed to them.

Also, EBSA’s criminal investigations led to the indictment of 76 individuals – including plan officials, corporate officers, and service providers – for offenses related to employee benefit plans.

These amounts are very sobering to read and it shows the work of EBSA in clawing back money for participants and getting some creepy fiduciaries indicted.

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.

I’m stubborn and there are just some things I don’t understand, so hear me out.

I got a call not too long ago from a financial advisor about my practice and how I price my work on a flat fee basis. I told the advisor that I charge $2,000 for a volume submitter retirement plan and the advisor asked me if the price differentiated if the plan had thousands of participants. I understood his question and I kind of thought it was funny because for me, drafting a plan for one person or drafting one for thousands of employees is about the same amount of work. I told him that the number of participants has no bearing on my plan document work and participant account is more interest for a third party administration (TPA) firm who has more expense in administering a retirement plan because of the number of sub-accounts they have to set up (if the plan is a defined contribution plan) or benefit statements they have to provide (for a defined benefit plan).

I’m no expert on TPAs, but I assume the only fee that may go up with an increasing plan asset size is the custody fee because regardless of the size of the plan, a plan is paying up to 6 to 8 basis points in a custody fee for a daily valued no transaction fee 401(k) platform Otherwise, there is no extra cost for a TPA to run a 100 participant, $100 million 401(k) plan than it is for a 100 participant, $10 million plan.

So I am flabbergasted by some very well known and well regarded TPA firms that still charge their administration based on assets. Having them charge on assets is not much more different than me charging for plan documents based on participant headcount. I know if it’s OK if it’s disclosed, but it still doesn’t make sense to me. Call me old fashioned, but I think a fee should be relevant to the work involved and assets bear little relation to the work of a TPA.

1. Cost is an overused consideration for picking plan providers, value and quality are underused.
2. Target benefit plans are the Boo Berry Cereal of retirement plans. You know they exist, but you rarely see them.
3. Target date funds, what’s the target? In 2008-2010, the target was the participant’s retirement savings that used them. The target was eliminated with extreme prejudice, as they would say in Apocalypse Now. I will never be comfortable with them.
4. People can’t understand that profit-sharing plans don’t require profits, but what does a Money Purchase Plan’s name mean? How do you purchase money?
5. The weirdest 401(k) plan investment I ever came across was an antique toilet.
6. The quality of a third-party administrator (TPA) can be determined on just one thing, the quality in support and education they give to their administrators. Good TPAs educate their workers, bad TPAs don’t.
7. The funniest beneficiary form I ever saw is when a participant selected someone as a beneficiary. For the relationship to the beneficiary, the Participant put “Good Time Joe.”
8. The worst legal determination is when I had to figure out what to do when a beneficiary killed a plan participant.
9. Plan sponsors will show more concern about plan costs when they realize that if the owners are participants in the plan, they are also paying way too much in fees themselves.
10. The most difficult client I ever had was a company whose H.R. director had me re-write the plan document 7 different times and at one point wanted me to draft it with elapsed time that required 1,000 hours (which is impossible because they are conflicting concepts).
11. Love how people talk about ERISA §3(38) fiduciaries being a new concept, I think they were originally part of ERISA when it was signed into law in 1974. Same with multiple employer plans, they have been around since then roo.
12. A fiduciary warranty offered by a plan custodian is the retirement plan industry’s version of the $3 bill.
13. Never hire an auditor for your 401(k) plan if they don’t know what revenue sharing is.
14. Will never forget the gall of a mutual fund company acting as TPA who thought nothing wrong of running a 401(k) plan as a safe harbor plan even though it didn’t have the provision because they never charged for compliance testing.
15. Plan design is an art, a fancy participant website is not.

I’m not a fan of reporting legislation, but this piqued my interest.

Sen. Pat Toomey (R-PA), a member of the Senate Finance Committee, is working on a bill that would allow plan participants to withdraw funds from their 401(k), 403(b), 457(b) and IRA accounts to pay for long-term care insurance (LTC) without being subject to the 10% early withdrawal penalty.

The legislation that will be introduced in the next few weeks will also allow up to $2,000 in withdrawals annually per individual to be excluded from income tax, provided the amount is used to pay for qualified LTC insurance for the participant, their spouse or a dependent.

According to the American Association of Long-Term Care Insurance, the average cost of a policy in 2019 is $2,050 for a single male (age 55), $2,700 for a single female of the same age and $3,050 for a couple who are both age 55.

I’m conflicted by this legislation because I don’t like retirement plan leakage, but the fact is that long term care costs are a concern especially when there is a good chance that most participants will need it.

Charles Schwab, the largest publicly traded discount brokerage firm and of the largest custodian of 401(k) plan assets has agreed to acquire TD Ameritrade for an all-stock transaction valued at $26 billion. The deal brings together two of the largest brokerage firms, with assets totaling north of $5 trillion, and is expected to close in the second half of 2020.

We have seen a tremendous consolidation in the third party administration and advisory businesses, so it should come as no shock that there would be consolidation in the brokerage/custodial business.

All I can say is expect more deals like this in the future.

Amazon is a mover and shaker in e-commerce and they have a pretty large 401(k) plan now. As of the end of 2018, their 401(k) plan has almost $6 billion in assets. So when Amazon ditches Vanguard funds for Fidelity as its recordkeeper for 2020, that is a big deal. Fidelity already has almost $2 trillion in plan assets under administration and handles plans for Facebook and Microsoft.