The Rosenbaum Law Firm P.C. Blog

One great about the Internal Revenue Service is that they tell us what they’re up to. They will tell us what their priorities on, so we will know what they will concentrate on. It’s best as a retirement plan provider to see when it’s coming.

Their 2019-2020 Guidance Plan has some retirement plan-related issues on it. One of the top issues on the list is student loan payments in conjunction with 401(k) plans and 403(b) plans. Employers have individually requested IRS approval of benefit arrangements that link student loan repayment and retirement plans. There have been calls for the IRS to issue guidance that other employers could avail themselves of without seeking IRS guidance or approval individually. Also, there are proposed bills that will do the linking without IRS action.

Other retirement benefit-related items on the 2019-2020 PGP are either new or carryovers from prior years’ lists, including the following.

• Revisions to the IRS Employee Plans Compliance Resolution System program for correcting retirement arrangement defects
• Broad updated guidance on Traditional and Roth IRAs
• Revised life expectancy tables used to calculate required minimum distributions, taking into account that people live longer
• Guidance on retirement plans of affiliated service groups
• Guidance on church retirement plans

I write a ton of articles as you may know and I will have advisors contacting me and suggesting some topic titles. I have adapted some of these suggestions, but there is the one I had to turn down. I had an advisor who wanted me to write an article against the concept of trustee directed/pooled 401(k) plans.

I won’t be writing that article anytime soon as I think plan participants are better off if trustees directed investments. But theorizing that is like telling people that Betamax was better than VHS, what is better isn’t always popular.

Trustee directed plans are better because the smarter people in the room (advisors supporting the trustees) would be making investment decisions rather than the people with the least amount of background to do it.

Long term businesses in the retirement plan business don’t die overnight. It takes a very long time as we see with Sears, the goodbye takes a long time. A dying business can change course, but the problem is that there essentially has to be a  change in culture to change.

The problem is that the hierarchy of a long term business in the retirement plan space is that you have the very same leadership in charge that was at the helm when the business went into a slow, death spiral. Unless the leadership decides to change course, almost nothing will be done to avoid the catastrophe.

If your business has been suffering for some time, the best option is to change course and realizer that whatever you’re doing is the same as what you’ve always been doing and that’s not helping out in trying to avoid the death of your business.

Retirement plans with more than 100 participants require a CPA audit for their Form 5500. However, small plans with less than 100 participants may sometimes require an audit. This often happens when more than 5% of the Plan’s assets are invested in what is called non-qualified assets and a fidelity bond wasn’t purchased in the amount of the non-qualified assets.

For many years, a certain client held a partnership interest in a privately held real estate partnership that exceeded 5% of assets and was considered non-qualified according to the Department of Labor’s guidance. The previous third-party administration firm (TPA) never raised the issue of the 95% rule, even though it’s been around for years. Of course, this issue only pops up after they make the transition to a new TPA. The new TPA tells the client they need an audit for $10,000 and the audit should have been done for years.

If this client never changed TPAs, would they have ever noticed this error? Of course not, because the lousy TPAs out there have no checks and balances to ensure proper administration. The good TPAs have a system of checks and balances where work is reviewed, checked, and checked again.

I hate to shill, but I stress the need for an independent ERISA attorney who can discover these errors. A review of Form 5500 and a plan asset schedule would have easily uncovered this.

As stated before, my Retirement Plan Tune-Up is a legal review that looks at the plan documents, administration, testing, Form 5500, and the investment policy statement for a flat fee of $750.

There are two major differences that I see in being an attorney when I worked for 9 years. for a third party administration (TPA) firm and the 9 years, I spent at my law firm.

First, I offer an attorney-client relationship with my clients rather than protecting my employer’s (the TPA) interest.

Second, I can now take credit for correcting errors caused by a TPA. The reason I couldn’t do it before as a TPA attorney was that it was my administrators making the mistakes.  It’s hard to take credit for correcting your employer’s errors.

About 20 or so years ago, there was a medical report that dental plaque could cause heart disease. The cynic in me tells me that this was some sort of dental conspiracy to increase revenue as fluoridated water and other dental hygiene has had to have a negative effect on the dentists’ bottom line. Regardless of my cynicism, good oral health is an important goal.

While some people only see a dentist when something in their mouth hurts them, many visit the dentist for annual or semi-annual checkups as preventative care, to avoid dental problems later. Brushing, flossing, and checkups help avoid the root canals, caps, and dentures.

As an ERISA attorney, sometimes I see myself as a retirement plan dentist. While some plan sponsors only seek counsel from an ERISA attorney when something terribly goes wrong with their retirement plan, there are many plan sponsors these days that seek ERISA counsel as a form of preventative care for their retirement plans. Seeking counsel from an ERISA attorney can be like seeking a dentist in avoiding greater harm. Part of the marketing of my practice has been to advise plan sponsors and their financial advisors that their retirement plan should be reviewed on annual basis to determine whether it’s being properly administered and whether the expenses for the plan are reasonable. These are preventative steps to avoid potential liability as a plan fiduciary. My Retirement Plan Tune-Up (which you will be hearing more about in the near future) is a legal review where I look at the plan terms, plan administration, and fiduciary to determine what works and what needs to be corrected.

Plan sponsors should review their plans to determine whether the plan still fits their needs and whether there are potential liability pitfalls in plan administration and the fiduciary process.

In my articles and my blog posts, I highlight the potential liability pitfalls that a plan sponsor needs to avoid. Whether it’s the lack of an investment policy statement or high fees, these are pitfalls that plan sponsors can minimize through best practices.

Some critics of my writings (some of them are ERISA attorneys) claim that small to medium-sized employers rarely get sue for breaches of fiduciary duty, so I am in the market of selling useless legal services. I guess that is my version of the plaque-causing heart disease theory. While the chances of a small to medium-size employer getting sued are slim, the threat is still there. The chance of getting hit by lightning is remote; we still minimize the risk of getting hit by avoiding standing near trees or staying outside. In addition, ERISA litigation progresses and when ERISA attorneys run out of suing the larger plans for fiduciary duty breaches, where will they turn next? Regardless of the small risk or not, plan sponsors should follow good practices because good practices tend to avoid bad results.

Like their teeth, plan sponsors should have their plans checked on an annual basis to avoid a retirement plan root canal later.

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

I always loved the movie Donnie Brasco, it’s a great story about the non-glamorous side of organized crime. As part of a crew captained by Sonny Black, Lefty Ruggiero played by Al Pacino is hammering away to get the change from a Brooklyn parking meter so there is enough money to kick up to the higher-ups of the Bonnano family.

I assume that ERISA litigators aren’t breaking up parking meters to kick up money to the partners of their law firm, but I always find that their expanding ideas of litigating against plan fiduciaries are something similar in the sense that they have to be creative in litigation once there is going to be “peak 401(k) fee litigation”.

What’s “peak 401(k) fee litigation”? It’s my theory that eventually the big money 401(k) high fee cases will end. Large corporations with 401(k) plans will eventually fix their plans when it comes to paying high fees and ERISA litigators are going to try to find new ways to target 401(k) plan sponsors because they have to eat too.

This may be done by targeting smaller to medium-sized 401(k) plans (less money involved than bigger plans which mean fewer rewards for ERISA litigators), further lawsuits against plan providers to try to hook them up being a fiduciary (which doesn’t have a very good track record), suing 401(k) plans for offering money market funds instead of stable value (lawsuit just thrown out against Chevron for that), suing 401(k) plans over target-date funds, or perhaps other new ideas such as targeting any plan whoever used revenue sharing or failed to provide enough investment education to plan participants (trying to recover for losses in a 404(c) participant-directed plan).

Another piece fitting in my theory is the idea that federal courts are getting tired of these ERISA cases and will make it harder for ERISA litigators making their case. We have seen some litigation where cases have been thrown out because the plaintiffs on these cases have failed to state a breach of fiduciary duty, just stating that funds are too expensive isn’t enough.

Another piece is some courts allowing an arbitration provision in plan documents that might restrict a participant’s right to litigate ERISA matters in court.

I’ve spent 21 years as an ERISA attorney and took some classes when I was getting my LLM and I learn something new about retirement plans every day. As a financial advisor, you likely didn’t have the training to be an ERISA expert, so there is so much you don’t know.

One of the biggest errors out there that could embroil your plan sponsor clients is when the plan document says one thing and your client does something else, It’s a huge problem. Retirement plans have to live by the plan document that governs them, any delineation is a huge compliance program that could subject the plan to penalties and possible disqualification.

It might make sense for you to get your client’s plan document reviewed and make sure the plan in administration is consistent. When I draft plan documents, there is this handy index that my volume submitter publisher creates that makes reviewing the plan easy. Most plan documents, you don’t get that handy index. So have your plan reviewed by an ERISA attorney (hi, there) or the trusted third-party administrator to review the plan document against practice and fix whatever doesn’t match through a plan amendment, self-correction, or a voluntary compliance program.

When I graduated from law school, it took a few months before I got my first job. So for the months, I wasn’t employed, I tried working with a temp agency to get temporary legal work. Let’s just say that no matter what they did, there was always a last-second change in plans where the temporary gig they had in mind for me, fell through.

No matter what, a retirement plan provider that disappoints you, will always disappoint you. Whether it’s an advisor or a third party advisor that isn’t up to snuff, will always disappoint you and the mistake you make is hoping that things will change.

As a retirement plan sponsor, you have the fiduciary duty to hire competent providers and you’re breaching their duty if you let these providers continue to make errors that cost you and cost the plan participants.