The Rosenbaum Law Firm P.C. Blog

I’ve been a very lucky person. Despite some hardships, whether it was high school or that certain law firm on Long Island, I’m very lucky to be able to achieve what I achieved in my own practice and this retirement plan business.

A big part of my business has been helping other retirement plan providers in starting and/or growing their business. Goodwill in this business goes a long way.

So to tell you the journey I went through to get to this point and to give plan providers advice on how to grow their retirement plan book of business, I am proud to announce that my Kindle e-book called How to Succeed in the 401(k) Plan Business: (and 401(k)’d: A Life) is available for purchase on Amazon.com right here.

If you don’t have access to a Kindle or Kindle for your computer or smart phone, a pdf version is also available for purchase for $9.95. Send me a paypal payment to my email (ary at therosenbaumlawfirm.com) . If you want an autographed, print version, the cost is $24.95 (paper costs money, sorry) and PayPal can be sent to the same email address. All profit from sales of the pdf and print copy will be 100% donated to charity.

The road to hell is paved with good intentions, so the person who does a good deed could end up getting punished.

Most financial advisors on a 401(k) plan do many things beyond the scope of what they were hired to do, such as helping the plan sponsor select a third party administrator or calling one up to complain about the service.

I have spoken to a number of advisors and a major pitfall for them is that they are giving plan participants investment advice without realizing it and by offering it, they are not abiding by the Department of Labor regulation that allowed it.

The problem is that many advisors don’t know the difference between investment advice and education (which they can offer without issue).

Education is general information such as asset allocation models and general investment information.

An advisor will be considered to be rendering “investment advice” to a participant or beneficiary only if

1. 1. the person renders advice to the participant or beneficiary as to the value of securities or other property, or makes recommendations as to the advisability of investing in, purchasing, or selling securities or other property; and
2.  2. the person, either directly or indirectly, (A) has discretionary authority or control with respect to purchasing or selling securities or other property for the participant or beneficiary, or (B) renders the advice on a regular basis to the participant or beneficiary, pursuant to a mutual agreement, arrangement or understanding (written or otherwise) with the participant or beneficiary that the advice will serve as a primary basis for the participant’s or beneficiary’s investment decisions with respect to plan assets and that such person will render individualized advice based on the particular needs of the participant or beneficiary.

If an advisor is giving investment advice without contracting for it is asking for trouble especially from the DOL.

If you are an advisor interested in offering investment advice and you will intend to abide the regulations and willing to pay for the compliance part of it, give me a call.

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

My latest JDSupra.com article can be found here.

The fixation and discussion about plan expenses usually flares up when the stock market isn’t doing well. Two major corrections within a 10-year period (2000-2010) made fee disclosure regulations inevitable.  With the way the market is going in 2014, we maybe headed toward another correction.

While the discussion about fees has had a positive effect on the retirement plan industry, it’s still not the greatest issue that has been left unresolved. While fees have gone down since the regulations have been implemented and plan sponsors have become cognizant of their need to pay only reasonable plan expenses, the biggest issue is still not talked about.

The issue? The fact that most participants in a participant directed 401(k) plan don’t have the requisite knowledge and background in order to make informed investment decisions.  Too many 401(k) plans don’t offer plan participants enough investment education to make informed decisions and only a small amount of plans offer investment advice.

Giving plan participants the choice of investments to make and having an investment policy statement with a regular review of investment options is only half the battle to limit liability under ERISA §404(c).

Financial advisors along with plan sponsors need to make sure that plan participants have the right tools to make informed decisions. With apologies to my old law firm’s h.r. director, handing out a bunch of Moriningstar profiles isn’t going to do it. Plan participants at the very least, need some investment education that talks about the general rules of investing. The ideal approach is to make sure plan participants get investment advice, whether provided by the financial advisor (by abiding with the investment advice regulations) or provided by a third party (such as rj20.com).

While this industry had done a decent job with lowering and disclosing plan expenses, it needs to do more to make sure that plan participants get enough information to make informed investment decisions.

My latest newsletter for plan sponsors and plan providers can be found here.

My latest JDSupra.com article can be found here.

Regardless of which side of the political aisle created it, I like any product or plan that allows rank and file employees to save for retirement.

President Obama made good on his State of the Union speech promise by ordering the Treasury Department to create a new retirement savings vehicle called, MyRA.

The accounts — which are intended for people whose employer has not sponsored a retirement plan — will operate much like Roth IRAs.

Married couples with modified adjusted gross incomes up to $191,000 and individuals earning up to $129,000 will be able to save up to $15,000 total in after-tax dollars for a maximum of 30 years. Then the employee would transfer their $15,000 account balance to a Roth IRA.

MyRA contributions can be withdrawn tax-free at any time without penalty, though pulling out any earnings will be subject to the same restrictions as the Roth IRA.

Initial investments can be as low as $25, and contributions as little as $5 can be made through payroll deductions; mutual funds usuallyhave much higher investment minimums.

There will be only one investment option: The Treasury will create a security fund modeled after the federal employees’ Thrift Savings Plan Government Securities Investment Fund, which pays a variable rate.

For the year that ended in December 2012, it had an average annual return of 1.74 percent. It posted an average annual return of 2.69 percent for the five years that ended in December 2012. There will be no fees. No fees are nice, but that annual return isn’t inspiring.

Sounds great, but I doubt that there will be any wide interest in that. First off, an Employer would have to make that MyRA available for their employees since it requires payroll deductions.

Second, how could rank and file employees afford to make after tax contributions to their plan if they are lower paid? The problem with 401(k) plans has been such low participation amongst the lower paid since they don’t have enough disposable income to make tax deferred contributions under a 401(k) plan and would have less to save if the contributions were after tax.

Thirdly, there are enough small business retirement plans available for those employers without the resources to set up a 401(k) plan such as a SIMPLE-IRA and self employed pension plan.  While MyRA requires no employer contributions (the other small business plans require contributions), I believe the lack of investment options, competing plans, and an employer’s likely unwillingness to offer them will deter participation in a plan that is probably a good idea.

MyRA is a nice idea, just don’t think it will catch on.

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 are 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 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 Code that they thought was a smoking gun. Again, retirement plans can require a year of marriage for 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.

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.