What Plan Sponsors Need To Know About The SECURE Act

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

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Bad advice can create bad IRS and DOL assumptions

A financial advisor called me and asked me if there was a problem that an insurance policy paid by a 401(k) plan had the policy in the name of the participant. Considering it was a plan asset, I thought so. If the participant is a plan fiduciary, a government agent could get the wrong idea that a prohibited transaction was committed.

Poor advice to plan sponsors on the smallest details could give the wrong impression to a government auditor. I will never get the actuary who told a plan sponsor client that it was no problem to issue a check from a defined benefit plan to a plan sponsor’s subsidiary, reasoning that the owners of the company were getting the bulk of the benefits under the plan. Well, the Department of Labor assumed the worst (embezzlement) and the actuary never provided 20 plus years of valuations that would detail the benefit owned to the owners of the plan sponsor.

There is nothing worse than giving bad advice that leads to wrongful impressions by a government agent.

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Great distribution needs a good product

If you have a great product, but lousy distribution, you’re not going to do well. Yet the same thing is on the flip side if you have great distribution, but a lousy product.

Whether it’s a multiple employer plan, a great IRA product, or anything retirement plan related, great distribution is certainly key. However, you need a great product you go along with it. How often, I hear about plan providers with these great distribution channels, yet are offering a product that won’t get much traction in the marketplace. A multiple employer plan that’s more expensive than a single employer plan or a 3(16) service that does nothing isn’t going to succeed even if you have distribution channels the size of Coca Cola’s.

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There is a cost to those free plans

There is nothing wrong with free unless there is a hidden cost involved. Small business plans that don’t require filing a Form 5500 is great until you realize the cost in saving for retirement plans.

SEPs are a nice plan, but there is no opportunity for salary deferrals and you have to give the same percentage contribution to all your employees. A Simple IRA is nice too, but the deferral limit is a lot less than a 401(k) plan and again, contributions must be pro-rata, which means no greater percentage of contributions to you as owners. A solo 401(k) plan is nice too, but it’s obsolete the moment you hire an employee.

Whatever your situation is as a plan sponsor, you do yourself a disservice by not looking at all the different options of retirement plans out there and seeing what fits you.

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Great 401(k) Ideas At The Time That Look Bad Now

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

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Focus on what the competition isn’t

When I started my law practice, I started to look at what the competition was doing and I decided to do things differently. Other ERISA attorneys charge by the hour, they charge for every phone call, and I just didn’t want to nickel and dime clients potential referral sources. Helping plan providers on the house by providing articles and answering a question went a long way.

As a plan provider, you also need to stand out among the crowd. Look at what other competing plan providers and do things differently because the competition is usually focusing on one area. If I’m a financial advisor, I’d focus on participant education/enrollment meetings. If I was a third party administrator, I’d focus on communication with the plan sponsor. I think those are areas that many providers aren’t, just a free suggestion.

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E-Disclosure is the way to go

There are quite a few people who will say that the Department of Labor (DOL) didn’t go far enough in their proposed regulations on electronic delivery of plan disclosures. I’m just glad the DOL is now in the 21st century. When talking about e-disclosures, remember that at the heart of it are participant rights and the rights of participants to be informed, many that may still not have access to a computer at home.

More robust regulations allowing e-disclosure will progress over time. My hope for the change in paper vs. electronic notices is hundreds of millions in cost savings. While paper manufacturers will lose out, I believe that participants will gain with more competitive fees, supported by plan providers’ cost savings in paper.

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Keep it simple stupid

As they once said in This is Spinal Tap, there is a fine line between stupid and clever. I can assure you that Michael McKeon who played David St. Hubbins in the movie and co-wrote it, was not in plan administration. Based on what I’ve seen when it comes to plan document drafting, the line fits just based on what I’ve seen.

The fine line between stupid and clever are plan provisions that are outside the box of normal administration. Complex provisions on eligibility, compensation, and vesting will lead to more errors than with provisions that are in the normal realm of plan administration. For example, eliminating forms of compensation for purposes of an employer contribution or salary deferrals leads to many errors, as well as unique eligibility provisions and entry dates.

There are so many normal choices for plan provisions, yet being unique and creative when it comes to plan document preparation isn’t a great feature. As I always say: keep it simple, stupid. Unique plan parameters lead to more errors and some errors will cost you to fix. Creativity isn’t a great trait when it comes to plan provisions.

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The question of providing information

ERISA requires disclosure of certain plan documents to participants including a summary plan description, statements, and notices. The problem is what do you do with people who aren’t participants such as potential employees?

If you’re scared about providing an SPD to a potential employee, maybe you should worry about what’s in your SPD. As for other information, you have to measure risk vs. offending the person requesting the information. You just don’t want to land in trouble by disclosing too much information and you also don’t want to offend those asking for information by just saying no especially if the goal is to hire them. There are certain things I wouldn’t disclose such as plan provider contracts and anything about plan governance.

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Great 401(k) Features That Aren’t A Fit For Every Plan Sponsor

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

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