The Rosenbaum Law Firm P.C. Blog

It’s 2019 and one area that the Department of Labor (DOL) could help both the retirement plan industry and plan sponsors out is making electronic disclosures and notices the default option and go with the times. Sure, the paper industry will lobby to stop this, but I think the DOL should allow everyone to handle disclosures and notices the way we deal with most things these days.

As long as participants who have no access to a computer or are computer-averse have protection, making e-disclosures the norm will save the industry money, which means less cost to both the plan providers and the plan sponsors. It’s a win-win.

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

I’m not afraid of many things, except making the deep water and the heights. I’m not afraid of the Department of Labor (DOL) because I listen to what they’re trying to say. So if they say that missing participants are a concern, I’m going to advise my clients to put processes in place to find missing participants and use rollover custodians like Millennium Trust when the accounts meet the rollover limits.

The DOL is focusing because most plans do nothing with missing participants until they need to terminate the plan. As a plan sponsor, you want to roll out former participants because they can be a compliance headache, especially since they tend not to get any information on the plan and may have a required minimum distribution if they’re around the magic age of 70 ½.

So if the DOL is trying to focus on missing participants, it’s important that you do as well. It’s always important to pick up social cues from our friends at the DOL.

It’s 2019 and while the hardship rules are changing for 2020, keep in mind that hardship distributions need to be substantiated by plan participants. We simply can’t take their word that they’re going through a hardship.

Whether it’s for medical expenses or to prevent Anne victim or any safe harbor reason, it’s important that participants can substantiate their immediate and heavy financial need.

The genesis for That 401(k) Conference can be traced to two things: 1) my experience at other 401(k) events and 2) my experience of running events for my old synagogue.

I ended up as a Vice President of the synagogue and I ran several events without much help of the fundraising committee. Why? I’m a control freak and I wouldn’t let my events die at the hands of the fundraising committee chairman.

Barry was a nice guy. But he was awful at advertising events. He’d wait until two weeks before the event to start advertising even though he had the event booked for the prior three months. Once I booked my comedian events, I’d start advertising it on our social media spots to let people know they should save the date. People are busy and if you want to build word of mouth, that takes time. So I did all the advertising for the events on my owned and I drove in triple-digit attendance at both events including a lot of people from the outside community.

For my 401(k) conference events, I’ll announce dates and times once the events are booked and once I have my logo for the event done. You should never run your events as if they’re surprise parties, you should let everyone know well in advance because people are busy. Whether it’s a plan sponsor or plan provider related event, let them know well ahead of time.

Chess is not a game that I ever played a lot or was ever good at it, but it’s a fascinating game because every move can change the course of the game.

I see sometimes plan design as similar to the game of chess because a good approach to it could increase the retirement savings and tax deductions for employers and individuals.

I’m still amazed at how many financial advisors, attorneys, and accountants, give short shrift to plan design, a third party administrator (TPA) is more important than just being a price point. They’re not a commodity, they are a service provider that can help employers say hundreds of thousands of dollars and even millions down the road by implementing a plan design or augmenting with a cash balance or defined benefit plan to help plan sponsors and participants to maximize retirement savings, which maximizes tax deductions.

Plan design is a big deal and hiring a good TPA that can do the job.

With the SECURE Act passed by the House and some form of legislation being expected to be passed by the Senate, the hope is that a form of open multiple employer plans will be allowed that will be treated as one plan without the requirements of commonality. Before this comes into play, I just want to talk about my experiences over the past 8 years with multiple employer plans (MEPs) and why most never really take off and if they do, most aren’t successful.

One major reason that most MEPs flop is time. It takes a lot of time for a MEP to grow into a critical mass where there are actual cost savings that most MEP providers tout. Cost savings is a big marketing tool to tout and most MEPs never achieve it because, over time, there is a sufficient number of participants and assets to make it successful. Getting adopting employers to a MEP is a slow process. I am affiliated with a very successful MEP in Florida and the advisor and I will attest that after 5 years, it’s finally a great success for us and for the adopting employers who are a part of it.

A big problem is plan providers. I have come across so many that don’t understand MEPs and if they do, they don’t want to be affiliated with them. That current big MEP I work on is on its third custodian/platform because the MEP was fired by the first two platforms that no longer wanted to work with MEPs.

The audit fee is a very big deal for MEPs. When you’re spending $10,000 to $20,000 on an audit and you only have a few hundred participants, that’s going to be an expensive proposition for many MEPs and their participants. One successful MEP I’m the attorney on in the North East still has the plan sponsor ()a very reputable employer association) still subsidize the cost of the audit, 4 years into their plan’s existence because of concerns over a burden it would be for the participants to pay for it.

The biggest problem of all is who will serve as the plan sponsor. Many companies don’t want their role and that it includes organizations that the plan is supposed to be attractive to the organization’s members.

Most calls I get for MEPs are plans that just never get off the ground and for those that do, many achieve the critical mass it needs to be successful. Feel free to call me, no matter the MEP idea.

Advisors ask me all the time of the role of education in participant-directed 401(k) plans. Participant-directed 401(k) plans that are governed under ERISA §404(c) offer the plan sponsors liability protection based on a participant’s gains or losses on their account when they direct their own investment.

There have been so many misconceptions that plan sponsors and advisors have had concerning ERISA §404(c) plans. They had this belief that if they just give a mutual fund lineup and some Morningstar profiles to plan participants that they are exempt from liability. ERISA §404(c) protection is about following a process and Morningstar profiles are just not enough education to give to plan participants. On the flipside, education to participants doesn’t have to amount to an MBA education.

I think an effective education component to ERISA §404(c) plans should include enrollment meetings where the characteristics of the plan are discussed, as well as the investment options, and offering the building blocks of financial education to assist participants to get a better understanding on how to choose investments.

In addition, written materials such as plan highlights and some Morningstar profiles should always be distributed.

Also while many advisors dislike, one on one meetingsto participants should always be offered. While most participants will probably shun such meetings, they should always be offered to those that want them because as we know, every participant has a different financial goal and need.  One on one meetings offer participant individualized attention on asset allocation and fund choices; it can be an effective means of educating plan participants more than what a general enrollment meeting can offer. It can help participants understand how retirement plan assets relate to their other assets as part of a comprehensive financial plan.

Advisors should always look at education as liability protection because offering participant education helps a plan sponsor minimize their liability under ERISA §404(c). While I always stress education as an important part of the fiduciary process, it’s not about achieving a specific result from participants directing their own investments. Offering participants educations is like the old proverb, “You can lead a horse to water, but you can’t make him drink.” So no matter how great the education component is, there is no guarantee that it will help plan participants achieve a better financial result because like they say, there is no guarantee in life, except maybe death and taxes. The participant who put all his money into a mid-cap fund because he considers it the “average of the market” may still do so even after getting an education at the enrollment meeting and through one on one meeting. As with most things with retirement plans, it’s about following a process and not guaranteeing a result.

There has been tremendous consolidation in the retirement plan marketplace, especially in the last couple of years. It’s been that way since fee disclosure regulations were implemented in. 2012. In the past week, two third-party administrators (TPAs) that I’ve referred plans to were purchased.

Consolidation is expected and there are several drawbacks to it. There is less competition and there are fewer jobs. While everyone I knew at Oppenheimer survived the absorption into Invesco, I was sad to see the LinkedIn posts of employees who were put on waivers. I’m torn also because I see working with certain providers is like going to your favorite bar. Like the bartender who knows your drink, certain plan providers know how you like things and of consolidation makes everything the same and makes the servicing of plans impersonal, it’s going to affect the way you do business.

I have to say that I won’t be consolidating anytime soon because I’m always a contrarian, but I do have some concerns on what impact it will have for years to come.

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