The Rosenbaum Law Firm P.C. Blog

As I have stated before, I am loath to hire employees because I was an employee once too. That pretty much means that I never met an employee whoever thought they were overpaid. For that matter, I never met an employer who thought that they pay their employees too little.

Despite what my former colleagues at union side law firms, employers typically don’t have a treasure chest of jewels they are keeping away from their employees, it’s just the dynamic of a relationship where an employee wants to make as much as they can and an employer wants to pay as little as possible. It’s not evil, just human nature.

For those that never ran a business, they don’t understand how costs of payroll and benefits must be tied to revenue because an employer’s pocketbook is not limitless.

Thanks to medical costs and taxes, it’s expensive to have employees. Employers are taking away benefits and not putting benefits out there that are really enticing to current and prospective employees. As an employee, regardless of where I worked, the health plan got worse and worse because medical costs are spiraling out of control and the employer had to rein in costs.

While employers may feel free to cut back on the benefits they offer, the one benefit that they can’t afford to neglect is a retirement plan. An employer can certainly cut back on the contributions they make to their retirement plan(s), but they can’t just cut back on the services to their plan by sticking the plan with a cheap provider (if they are the ones paying for administration, rather than the plan) if it’s going to negatively affect the plan’s administration and compliance.

The reason is because employers as plan sponsors are also plan fiduciaries too. So employers still may want to cut back on benefits, they need to make sure that they don’t do something that could negatively impact their role as plan fiduciaries.

Any change of plan provider or even in a change in benefits should be done in consultation with your plan providers and/or ERISA attorney to make sure that any cutbacks in benefits you must make won’t increase your plan fiduciary liability exposure.

My latest JDSupra.com article can be found here.

The Anthem class action lawsuit concerning the use of Vanguard index funds has caused a hullabaloo in the industry. IT even got a writer to pen an article suggested that the lawsuit may trigger a return to the use of actively managed mutual funds in 401(k) plans.

My response: that is utter and complete nonsense.

The Anthem case has absolutely nothing to do with the age old index fund vs. actively managed fund debate. The case is about the duty of prudence and paying reasonable plan expenses. Bottom line, Anthem is accused of using more expensive retail share classes when available cheaper institutional shares of the same funds were offered. So it doesn’t matter that the funds offered in the plan were index or active, what mattered is that according to the complaint, the plan sponsor violated their duty of prudence by not seeking cheaper share classes, which were available for this $5 billion plan.

The other concern is that Vanguard was the bundled provider for the plan and they were charging somewhere between $42-94 per participant for recordkeeping services where the complaint said $30 was reasonable. I think that you will see more and more class action lawsuits regarding bundled providers and the use of their own proprietary mutual funds offered under 401(k) plans. Just my prediction.

Yes, I will admit it: I love soap operas.

My favorite show of all-time is Dallas and when I was a senior in high school and I was at home around 12:30 pm, I watched in succession: Young and The Restless, Bold and The Beautiful, One Life to Live, and General Hospital. Needless to say, I didn’t have the most active social life in high school.

To go through life, you have enough headaches, especially if you’re in charge of your company’s retirement plan.  You don’t want your retirement plan to turn into a soap opera and one way to avoid that headache is to make sure that your employees update or review their beneficiary forms every time you have a plan enrollment/ investment education meeting with plan participants. My story will tell you why.

Years ago, I worked for a third party administrator (TPA) and I had to review a soap opera that was because of an enrollment form.

A law firm partner of a client we were the TPA for, named his children as his beneficiaries. His spouse had predeceased him.

He got married to the new wife and as part of the pre-nuptial agreement; she waived her benefit to the 401(k) plan in question. He died and his two children felt that they were entitled to the benefit. They were right, you think? You’d be wrong.

While a spouse has every right to waive her benefit, a pre-nup by itself is not an actual waiver according to the rules governing retirement plans. So in addition, the spouse had a pre-nup that she signed and then needed to sign a separate waiver form to waive the benefit to make that pre-nup effective. She didn’t, her good fortune.

The children were horrified and their counsel asked about that one-year provision in the Internal Revenue Code that they thought was a smoking gun. Again, retirement plans can require a year of marriage for a spousal waiver, they don’t need to and most plans I have come across don’t have that one-year provision.

End of the soap opera story, in my case, this second wife actually waived her right to benefit and the children got the benefit because this second wife wanted to keep her end of the bargain in the pre-nup, valid waiver or not.

It can’t be stressed enough that plan participants need to review their beneficiaries consistently and if the participants gets re-married, widowed, or had new children, they need to sit down and determine what they do with their retirement benefits since these are non-probate assets governed by ERISA and the Internal Revenue Code.

Headlines are great, but you need to read the entire article to get the full picture.

There is a new class-action lawsuit that is pitting participants in the Anthem Inc. 401(k) plan, with more than $5 billion in assets, against plan fiduciaries for an alleged fiduciary breach due to excessive investment management and administrative fees for a plan that has many Vanguard index funds in the lineup.

I’m sure people are scratching their heads on this one because Vanguard index funds charge some of the lowest management fees in the 401(k) plan business. The problem is the headlines don’t tell the whole story.

First off, this $5.1 billion 401(k) plan offered more expensive share classes of Vanguard funds when less expensive share classes of the very same fund were available to this Plan. For example, as noted in the complaint the Vanguard Total Bond Market Index charged 20 basis points when another share class of the very same fund (with the symbol VBMPX) only charges 5 basis points. The same can be said for the Institutional Index Fund, the Extended Market fund, and many of the other Vanguard funds in the investment lineup.

Secondly, Vanguard was also the recordkeeper of the Plan and it was alleged that the Plan was charged excess fees. For example, from 2010 to 2013, the plan paid approximately $80-$94 per participant for record keeping, both through hard-dollar and revenue-sharing fees. In September 2013, the expense was lowered to a flat annual $42 fee per participant. According to the complaint, the limit of a reasonable fee for the plan would have been $30 per head.

What does this all mean? It means that a plan sponsor must be vigilant and prudent in the selection of plan investments and providers. A plan sponsors needs to be aware of the cost of investment options and must always ask their financial advisor whether there are less expensive share classes available based on the size of their plan.

My newsletter geared towards retirement plan providers can be found here.

My latest JDSupra.com article can be found here.

Sometimes if you don’t want to be a target, don’t make yourself to be a target.

Insperity Inc. a provider of outsourced human resource and business management services to small and midsized businesses has been sued by participants in a Insperity 401(k) plan. It has been alleged the company and its subsidiaries charged “excessive” record-keeping fees and made other fiduciary breaches of ERISA.

The complaint also alleges that Reliance Trust Co., the discretionary trustee for the plan, breached its fiduciary duties by allegedly making “imprudent” investment decisions.

The employees of Insperity’s client companies are offered participation in the 401(k) plan. Insperity offers its services, which include payroll and benefits administration, to more than 100,000 businesses with more than two million employees.

The problem is that Insperity hired Insperity Retirement Services, a wholly owned recordkeeping subsidiary to be the service provider to the Insperity 401(k) plan. The 401(k) plan ended up being the new record keeper’s first client. The problem also is that in 2013, 95% of Insperity Retirement Services’ assets under administration as TPA belonged to the Insperity 401(k) Plan.

It was also alleged that the fiduciary trustee and advisor to the plan, Reliance Trust, selected and retained its own high-cost and poorly performing investments to benefit itself at the expense of plan participants.

Now the participants, Insperity, and Reliance Trust will have their day in court and the allegations in the complaint are allegations. However, I always believe that as an ERISA attorney, it’s my duty to keep my clients from partaking in prohibited transactions and it’s even my duty to avoid relationships that suggest that prohibited transactions take place.

Now perhaps no prohibited transactions took place, but do you think Insperity hiring a subsidiary for plan administration and hiring a trustee where the trustee’s proprietary investment options are available just doesn’t look right.

Now what did I say about not making yourself a target?

ERISA litigators love targets, whether there were improper transactions or not.

My latest newsletter can be found here.

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