The Rosenbaum Law Firm P.C. Blog

All ERISA plans need an ERISA bond that protects the plan from thefts of plan assets by plan fiduciaries.

ERISA requires that every fiduciary of an employee benefit plan and every person who handles plan assets be bonded.

A plan official must be bonded for at least 10% of the amount of funds he or she handles. In most instances, the maximum bond amount that can be required under ERISA with respect to any one-plan official is $500,000 per plan. However, higher limits can be purchased. The maximum required bond amount is $1,000,000 for plan officials of plans that hold employer securities.

The problem here is that having a bond is a question on Form 5500 and if a plan sponsor doesn’t have one and acknowledges it, they are likely to get contacted by the Department of Labor for an audit. The other problem is that there are too many plans out there who think they have an ERISA bond but don’t have one. An insurance policy that protects the plan sponsor from theft isn’t an ERISA bond,it’s a theft policy. An ERISA bond has to reference plan fiduciaries and ERISA plans. So a plan sponsor needs to review their bond to make sure it is an ERISA bond and if it’s not, they should get one.

I watch a podcast called Something to Wrestle with former WWE creative mind Bruce Prichard and he insists that there was no box of gimmicks for a wrestler to choose or be chosen their gimmick/persona.

With 401(k) plans, there is a box of gimmicks where providers are selling guarantees and warranties where they will claim they will protect plan sponsors from fiduciary liability, but in the end, they aren’t serving in a fiduciary capacity.

Real fiduciaries for your plan don’t have a box of gimmicks, they will claim to share that responsibility in their action and in their contract’s language. So avoid plan providers that use the F word (fiduciary), but won’t serve in that function.

With the recent guidance issued by the Department of Labor (DOL), third party administrators and financial advisors are going to scramble and try to find a multiple employer plan (MEP) solution that will fit their needs and the needs of clients/potential clients.

As with anything in this business, there are solutions out there and there will be solutions out there. Unfortunately, many of the solutions out there are too high in costs or not a good fit, which defeats the whole purpose of having a MEP in the first place.

Check commercial here, but my podcast co-host Dan Venturi and I are developing a MEP solution for third-party administrators, record-keepers, financial advisors, and other plan providers interested in this space.  You know where to reach me.

As an ERISA attorney, 3(16) plan administrator, and sponsor of several 401(k) plans that needed an audit completed by October 15^th to file the Form 5500 on-time, I will have to say I’ve noticed a discrepancy among audit firms.

The discrepancy I see revolves around how technology has changed 401(k) plan and how auditors deal with the technological change. Most audit forms can deal with the fact that almost all records are now online including the mechanism to approve loans and distributions, some do not. Those audit firms that can’t understand the changing times run around like a chicken without a head, spending too much time in complaining to the plan sponsors, the third party administrator, and every other plan providers that they don’t have the requisite records for testing and review when everything is easily downloadable from the plan provider website.

October 15^th is a very stressful time for everyone in the retirement plan space, auditors that don’t understand the changing 401(k) plan technological environment add more stress to a situation that doesn’t need it and the audit firms that do understand the change, are a credit to the plan provider community.

When I was a synagogue Vice President, I was miffed that the main leadership were relics of the past who insisted it was still 1978 and just having our doors open would get new members. I said the synagogue needed to change its approach as younger families didn’t see the value in paying synagogue dues.

Similarly, plan providers need to understand that just providing 401(k) plan services isn’t enough. They need to connect with millennials because there seems to be a lack of interest for these employees to get involved in a 401(k) plan. Navient’s Money Under 35 study states that 40% of millennials think they can wait on saving for retirement. To me, it shows a lack of connection between retirement plan providers and a growing sector of the audience that 401(k) plans serve. I believe that unless this is fixed, we are going to have a negative outflow when the baby boomers and people from my generation retire because these are the people who are saving in 401(k) plans these days.

Like the Y2K problem, this is a long-term problem that can be solved with more effective communication with millennials about the necessity of retirement savings.

My latest newsletter geared towards retirement plan professionals can be found here.

When it comes to drafting plan documents, I always say K.I.S.S.: keep it simple, stupid.

Any intricate plan design features such as weird matching allocations and out of the box definitions of compensation is a great way of having this administered in a wrong fashion. Many years ago, when I was working for a third party administrator (TPA), I was given a proposed amendment drafted by an outside ERISA attorney. I told our conversion specialist that while I could understand what the attorney wanted to do with the matching contribution formula, I wished him good luck on having it administered that way. While there are many times, when you need out of the box provisions, I would avoid it if you can.

I recently go through a harrowing Department of Labor (DOL) audit over the late deposit of salary deferrals. What was the problem for the client was multiple locations and multiple payroll providers and previous third-party administrators (TPAs) that didn’t alert the client that this was a problem.

As part of resolving this issue with the DOL auditor, I suggested a salary deferral procedure, a written policy that details the issues regarding late deposits and how the plan sponsor was supposed to make sure it didn’t happen again and what steps they would take if it did.

It’s not a masterpiece, but it gives a good explanation of why late deferrals is a big thing and the steps that the employer to make sure this isn’t a recurring issue.

If interested in this policy for your plan sponsor clients, you know where to reach me.

Providing advisory help to a 401(k) plan is a great part of a financial advisor’s business because it can grow to ancillary lines of business such as working with the decision makers of the plan and their money.

One great ancillary business that too many advisors are avoiding is health savings accounts. Alliance Benefits Group of Illinois had a great presentation about that at That 401(k) Conference at Wrigley Field in September. Assets in these accounts can be invested and they can grow for the plan participants, so it’s a no-brainer for advisors to pursue that business and inquire whether these accounts are a great idea for their clients.

My latest newsletter can be found here.