The Rosenbaum Law Firm P.C. Blog

The safe harbor notice deadline for calendar year 401(k) plans is coming December 1. This notice requirement is one of the requirements for a plan to be a safe harbor, in addition to the fully vested contribution that gives 401(k) plans a free past in the ADP test (for deferrals), the ACP test (for matching), and Top Heavy test. The notice in a sense is a proactive solution since you have to give the notice before the plan year starts (and you won’t be certain 100% that you failed until after the plan year ended), but most times, it is reactive because it is usually done in response to previous bad testing results.

I think one of the differences between a good third party administrator (TPA) and a bad TPA is how they handle safe harbor. Once again, a safe harbor option whether it’s the 3% non-elective, 4% match, or the automatic deferrals QACA match, it’s not for every plan. A plan that easily passes testing doesn’t need it and some plans can’t afford it. However, I have seen TPAs administer plans where the plan sponsor is already making a fully 100% vested contribution to plan participants that exceeds the contribution needed for safe harbor.  For example, I just came across a plan where the TPA is telling the client that they will likely fail the Top Heavy tests even though they make a fully vested, 7.5% matching contribution.  So even though they make a contribution that could have satisfied safe harbor, it doesn’t, so the plan sponsor has to make another 3% contribution to non-key employees.  So if a company is consistently making a fully vested contribution that exceeds safe harbor, there is no harm for making it a safe harbor, it can be a pro-active solution to make sure the demographics of the plan don’t eventually one day cause the plan to fail one or more of the discrimination tests.

Plan design is like a game of chess, it is based on strategy and finding the right moves to achieve the maximum contributions and avoiding unnecessary harm like compliance testing issues. The good TPA is going to be pro-active and have a plan formula of contribution that will maximize contributions and avoid unnecessary contributions.

My latest JDSupra.com article can be found here.

I have been a New York Giants football since the days of Ray Perkins, Brad Van Pelt, and Joe Danelo. 4 Super Bowl victories have been far more rewarding than my time as a Mets fan.

Thinking about football reminded me of a client my employer, a third party administrator  was trying to smooth out a relationship with the new benefits manager of a law firm with $25-30 million of assets in their 401(k) plan. Without any prodding by our firm, this benefits mangers said he was a Jets fan and he circled out from a schedule of games of the ones he would like to attend. That was the benefit manager’s message that he wanted my TPA to buy him Jets tickets and the TPA got the message by buying these tickets. Needless to say, that law firm was still a client for many years after.

Like Don Fanucci in Godfather Part II, there will always be plan sponsor representatives that would like their beak wet. This type of bribery is something that will always be available in the retirement plan marketplace, but it’s up to the plan sponsor and its providers to make sure that any gifts are de minimis to avoid any prohibited transactions and under the board conduct that could put the plan sponsor in danger.

As a plan sponsor, you need to make sure that there are checks and balances. Having one person making all the decisions is likelier to be prone to bribery and kickbacks than a situation where a committee makes the decisions. Any guidelines that restricts what gifts can be made and requirements of plan providers to report these transactions (just like labor unions and their providers must do annually) will go a long way to make sure that the selection and retention of plan providers is above board.

My latest newsletter geared towards financial advisors can be found here.

Everyone has been focused on fees since the implementation of fee disclosure in 2012. It didn’t end retirement plans for everyone, but it put pressure on fees.

While the focus on fees have affected those providers that do more for less (third party administrators), they have also put pressure on advisors who are now doing work that they used to get paid double just a few years ago.

While those administration and advisory fees have been pressured, I still think that mutual fund management expenses are still where to focus. I’m not a psychic, but I think that revenue sharing fees that are paid by mutual funds that tend to be more expensive than those who don’t is where the problems lie. I’ve never been a big fan of revenue sharing and never will. Maybe it’s because revenue sharing looks like some sort of legal kickback and something resembling payola.

The reason I’m concerned about revenue sharing because I know ERISA litigators are targeting plans out there that have them and have used revenue sharing as a reason why they select certain mutual funds. It’s my opinion and my opinion only that revenue sharing will end at a certain point. It’s too much grief for plan sponsors, advisors, third party administrators, and mutual fund companies as well. Mutual funds can simply replace revenue sharing by just cutting investment expenses in the same amount of revenue sharing.

I’ve been wrong before (I thought Apple Stores were a bad ides), but I have a better track record in retirement plan marketplace opinions.

My latest newsletter can be found here.

Elias Feinsod, Jacob Croland, Meyer Spitzer, Edward Skydell, Lena Belsky, Bessie Lepifky, Edward Rappaport, Milton Kronick, Harold Greenberg, Anna Hendelman, Lillian Iasaacson, Katie Schwartz, Ben Berke, Dora Lobman, Oscar Geller, Jean Ronick, Joseph Silberman, Bernice Sharf, Sylvia Spund, Florence Mason, Morris Smith, Jacqueline Morgenbesser, Herbert Knopp, and Michael Daniels

My latest JDSupra.com article can be found here.

The Internal Revenue Service (IRS) announced their retirement plan contribution limits for 2016 and they remain the same limits as 2015.

The IRS said the 402(g) salary deferral contribution limits for employees participating in 401(k), 403(b), most 457 plans will remain at $18,000 .

Employees aged 50 and over will be able to contribute an additional $6,000, which is the same as in 2015.

The IRS also announced the annual benefit limitation under a defined benefit plan will remain unchanged f at $210,000 and the limitation for DC plans also remains unchanged at $53,000.

The definition of a highly compensated employee also remains the same as in 2015 at $120,000.

It’s amazing sometimes how people are blind to conflicts of interest that are as clear as die. In my local hamlet, the Library Board hired a School District board member as their attorney even though there is a transactional relationship between the Library and the School District. The attorney for the Sanitation District was hired as the Library’s director of community activities (the position is now paid) while the Library board is stuffed with Sanitation District cronies. In addition, his wife was a Board member until the time he was hired. Some people are ethically challenged.

As a retirement plan provider, you need to understand where there is a conflict of interest if someone you know hires you. Whether it’s a family member, golf club, church, or bank where you serve as an advisory board member, you need to identify any potential conflicts of interest.

While a plan provider needs to understand the prohibited transactions rules under ERISA and the Internal Revenue Code, a plan provider should also identify the non-retirement plan rules on conflicts of interest. For example, if you are on a private school committee and you are hired as the school’s retirement plan advisor, you may not have an issue with the prohibited transaction rules, but you may have a problem with the school’s rules on conflicts.

Nepotism is as bad as cronyism, so getting hired as a retirement plan advisor because you’re related to a decision maker is also a potential problem. It might be Kosher with ERISA and the Internal Revenue Code, but it may not pass muster with the courts and/or the Department of Labor under review.

Just because something might be OK with retirement plan rules, it may not be good for the organization or person that did the hiring.