The Rosenbaum Law Firm P.C. Blog

My latest newsletter can be found here.

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

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

I used to use a lot of paper in my law practice. Then I had 10 feet of water in my office after Hurricane Sandy and my file cabinet was outside, drying off for the next six months. Let’s just say I went paperless after that.

I’m still amazed that today, retirement plan providers still use paper and a lot of it when so much can be done online or in some digital format. You can save a lot of trees by moving some or most of your work to a non-paper format and I enthusiastically support the American Retirement Association’s imitative in trying to push the Department of Labor to go digital for notice requirements.

If you’re looking to cut costs in your business, see how you can save on paper.  Saving trees and money is a good thing.

As an ERISA attorney for almost 21 years (my career can get its own drink), I have seen a lot of strange things that plan sponsors have done to risk the ire of the Internal Revenue Service (IRS) and the Department of Labor (DOL).  Many of these strange things could have resulted in plan disqualification and the agent from the IRS or DOL let it pass while I’ve seen plan sponsors make more innocent mistakes and pay through the nose. So sometimes it’s not what you do the counts, but the type of agent you get reviewing your mistake.

In 2001, I handled an IRS audit of a client when I was working with a third party administration (TPA) firm.  The IRS agent reviewing the case notices that the owners of the company were taking out loans in excess of the $50,000 limit. That was a major error. A bigger error was the fact that these owners were shareholders of an S corporation and prior to 2002, were not even allowed to take out loans.  This was a major error that the prior TPA never caught. The punishment, the illicit loans were treated as taxable, deemed distributions and the company had to pay an excise tax for the value of the money loaned out to these owners. To this day, I am shocked that the agent didn’t want blood from a stone, because he was entitled to get it.

On the flip side, I had a client being audited by an IRS agent. The matching contribution was misallocated because the TPA didn’t allocate it correctly, according to the terms of the plan document they drafted.  If we added all the years under review, the error was probably less than $1,000. For some reason, the agent was reviewing this thing for months and demanding that the company pay some sort of penalty. In addition, a shareholder of the company who had no salary nor ever worked for the company was not listed as a highly compensated employee. The IRS agent demanded that this owner be listed as an employee even though he was not and his listing as a highly compensated employee would have helped the client in their discrimination testing.

On the DOL end, I had a client who put in all their defined benefit plan money with a fellow by the name of Bernie Madoff. The client, for all purposes, had no investment advisor (since Bernie was busy, running other things) and no investment policy statement. The DOL agent got a promise from the client to make up all the benefits to the employees and that was that.

On the flip side, an owner of a bankrupt business who was entitled to the bulk of the assets from a defined benefit plan was being sued by the DOL because the owner’s actuary failed to produce valuation reports and distribution forms for when the owner was receiving her benefit. While she certainly breached her fiduciary duty by not watching the actuary, this happens all the time when there is a terrible TPA. Is this worth a lawsuit? Not in my mind.

Whether a plan sponsor gets their hands slapped or pay through the nose for plan errors and breaches of fiduciary duty may not depend on the offense, but the DOL or IRS agent reviewing the case. Sometimes, the plan sponsor’s fate depends on the luck of the draw. That’s just another reason to keep the plan in good shape because you don’t want to take that risk.

My local school board is run by a clique who see nothing wrong that some of their children got hired by the school district, hiring decisions approved by the board (minus the parent who abstains). The board and their minions will tell you that there is nothing wrong, but I believe anything that looks bad implies it’s bad.

Speaking of looking bad. Fidelity CEO Abigail Johnson sits on the board of MIT and Fidelity happens to be MIT’s recordkeeper. Fidelity and Johnson have contributed to MIT. That’s all Jerry Schlicter needed to file a class-action lawsuit on behalf of aggrieved participants. Do I believe that there is something wrong going between Fidelity and MIT? No. Fidelity is a large enough provider that they don’t need MIT’s business. However, it looks bad. Between that and the donations, it’s OK for an ERISA litigator to think something is amiss. I think the biggest problem in the case is that it doesn’t appear that MIT properly benchmarked their fees and based on some emails, MIT officials assumed there would be donations from Fidelity if the plan wasn’t pushed top TIAA or Vanguard. Some dumb emails from MIT officials don’t prove Fidelity did anything bad, it’s just evidence that MIT might have been going out to business for themselves by using the 401(k) plan as a possible carrot for donations from Johnson and Fidelity.

What does it mean? I think Schlicter has enough issues to beat back a summary judgment motion by MIT.

I always believe that appearances are extremely important and if things just don’t look right, they should be avoided at all costs. I take issue with my school district where the children of the board of education members have been given full-time employment. Sure, the board member abstains when their child or children are hired, but when the other board members are long-time associates in multiple civic organizations and one the board, does it really matter? Things that look fishy give off the appearance of impropriety, even if it’s not.

When it comes to hiring a plan provider or even selecting investment options, any appearance of impropriety or conflict of interest is going to warrant attention and the last thing you want is attention from the Department of Labor (DOL). The DOL on audit has been targeting any conflicts of interests in plan investment options and selecting investment advisors. So using too many proprietary funds of your plan provider or selecting your sister as the financial advisor are some things you should avoid.

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

I always believe that appearances are extremely important and if things just don’t look right, they should be avoided at all costs. I take issue with my school district where the children of the board of education members have been given full-time employment. Sure, the board member abstains when their child or children are hired, but when the other board members are long-time associates in multiple civic organizations and one the board, does it really matter? Things that look fishy give off the appearance of impropriety, even if it’s not.

When it comes to hiring a plan provider or even selecting investment options, any appearance of impropriety or conflict of interest is going to warrant attention and the last thing you want is attention from the Department of Labor (DOL). The DOL on audit has been targeting any conflicts of interests in plan investment options and selecting investment advisors. So using too many proprietary funds of your plan provider or selecting your sister as the financial advisor are some things you should avoid.

I always say that you have better chances not getting caught by robbing a bank than you do by stealing money as a plan fiduciary. Yet, people still do it and come up with some amazing ways to get away with it. This new story is a fiduciary who created a third party administrator (TPA) skimming operation.

A Connecticut contractor has pleaded guilty to stealing more than $3.3 million from hundreds of his employees through phony administrators’ fees on their retirement plans.

Federal prosecutors say Lee Ferguson, of Farmington, who owned Ferguson Electric and Ferguson Mechanical, deducted from $1.60 to $3.15 per hour from each employee’s benefits packages under the guise of “third-party administrative fees.

The fees went to TPA of Connecticut, a company Ferguson established and controlled. TPA of Connecticut, in turn, sent the money to DJS Associates, a company that Ferguson formed for the purported purpose of performing business-consulting services, but which did nothing.

For fake administrative services, I’m sure Ferguson’s greed did him in.