The Rosenbaum Law Firm P.C. Blog

When it comes to your health, there are certain symptoms you should look out for that could be a harbinger of something wrong. The same can be said of your 401(k) plan. Here are some things to consider:

1. Late deposit of salary deferrals.
2. Low average account balances.
3. No ERISA bond in place.
4. Low deferral participation rate.
5. Compliance testing failures, corrective contributions made.
6. Too many hardship requests.
7. Too many defaulted plan loans.
8. No benchmarking of fees.
9. No review of plan providers.
10. No formal fiduciary process followed.

If you just have one of these symptoms, your plan needs a checkup.

In the past 35 years, it changed on who had to take out a required minimum distribution (RMD) from a qualified retirement plan. Thankfully, it hasn’t changed since 1997. So a person who is a 5% owner has to take out an RMD from the plan after attaining age 70 ½. Non-owners can wake for their RMD until they retire.

As a plan sponsor, you need to make sure that you watch out for 5% owners who may be near their RMDs as well as non-owners who are no longer working for you and cant be found. RMDs are a big issue because a failure of a participant to take an RMD will get that a participant a huge 50% excise tax.

If you do mess up, it’s on you as a plan sponsor to fix that and the best bet is an application to the Internal Revenue Services’ Voluntary Compliance Program to seek a way out of the participant getting a 50% excise tax.

Studies previously showed that participation rates in a 401(k) plan are negatively impacted when there are more funds on a 401(k) fund lineup. However, a new study suggests that adding more funds is better.

A report from Morningstar finds that increasing the core menu size not only results in increased adoption of a plan’s default investment, but it also can result in more efficient portfolios. The report showed that increasing core menu size resulted in increased adoption of the plan default investment, from approximately 74% for plans with 10 funds in the core menu to about 87% for plans with 30 funds.

The report is compelling because it stated that previous studies on fund lineups were conducted before the qualified default investment alternative (QDIA) was added to the Internal Revenue Code in 2006.

I just thought I would throw that out there.

As part of an analysis, Fidelity Investments compared average asset allocations of participants to an age-based Target Date Fund and they found that nearly a quarter (23%) of 401(k) savers still have a higher percentage of equities than recommended, including 7% who are 100% invested in equity.

This should shock no one. Again, I always believe that participants are ill-equipped to make sound investment decisions and this analysis is consistent with that. As an industry, we still don’t do enough in educating plan participants.

One of my favorite sayings is that you should never make yourself a target, but when you are a mutual fund company and you use your own proprietary funds as an investment option in your 401(k) plan, you are certainly a target for the ERISA litigators as part of a class-action lawsuit.

Prudential now faces a self-dealing lawsuit filed by participants in its defined contribution retirement plan, alleging various fiduciary breaches under the Employee Retirement Income Security Act (ERISA). The lawsuit alleges that Prudential put their interests ahead of those of the plan “by choosing investment products and pension plan services offered and managed by Prudential subsidiaries and affiliates, which generated substantial revenues for Prudential at great cost to the plan.

My feeling on these type of cases is that Prudential doesn’t put proprietary funds in their plan to make money off their employees, they do so for appearances’ sake. It reminds me of the joke where restaurant workers order takeout for lunch, it looks bad. Inconsistent with the joke, Prudential using other fund family products and not their own proprietary funds look bad too.’

The problem for many of these companies is that the cost of appearances will increase, thanks to the cost of defending class action lawsuits like this.

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

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

I have worked with several associations in setting up a multiple employer plan (MEP) and even more, that didn’t want to start one.

As I often discuss, starting a MEP isn’t easy because of the times it takes to grow assets and become viable. For associations, a MEP could be another way of showing value for association memberships, but the association may be wary of the work that is involved. There will always be liability issues of being a fiduciary of any kind and the question of whether it really will be of value to them, especially in terms of membership interest and revenue.

There is no slam dunk and every association is different because the dynamics with every organization is different. However, if you have contacts with the powers that be at these associations, I think this could be a tremendous thing.

At home, I have Verizon FIOS for TV and the Internet and that was after having my cable provider, Optimum for about 13 years. A few months back, I was enticed to re-sign with Optimum and their new Altice converter box/router. When it came the day of installation, the Altice system failed during installation and the installer told me that the Altice system was buggy and wouldn’t be great for another 4 months, so I canceled the installation.

As a plan provider, you can’t afford something buggy that won’t work. Whether it’s your website or an app or any type of system where plan sponsors have an interface, you can’t afford to look bad in front of clients and other providers. You only get one chance to get it right and that’s what beta testing is all about.

I’m a long-suffering fan of the Mets and over the past two years, I’ve had to deal with the underwhelming leadership of Mickey Callaway as the team’s manager. Callaway was never a manager and it showed. He was a successful pitching coach of the Cleveland Indians and he did a heck of a job in mismanaging the rotation and bullpen as Mets manager. So when Mickey was fired, the hope was that the Mets would hire an inexperienced manager. Well, they didn’t. They picked future Hall of Famer and former Met Carlos Beltran. I knew that successful managers weren’t going to get the job because the General Manager wouldn’t be able to control a Joe Girardi or Buck Showalter. Since Brodie Van Wegeman was going to pick the manager as general manager, he was going to pick a candidate that he could control.

The point is that when hiring employees, hire the best people for the job. Never let your ego or standing get in the way of hiring the best candidates available, period. If you’re incompetent and you just want to hire employees that are worse than you, they’re still going to eventually find out that you’re not up to the task.