The Rosenbaum Law Firm P.C. Blog

As a 401(k) plan sponsor, you need to know that plan errors happen all the time. A 401(k) plan has so many moving parts, so that means something might break. The problem here is that while things can happen without control, you can control some errors by avoiding some problems.

One of the most avoidable errors you can avoid is offering multiple loans through your loan program. I believe you should offer only one loan maximum at all times. You’re not in the business of being a loan shark and I have seen so many errors happen because the plan sponsor or third-party administrator forgot that one or more loans weren’t being repaid, which may lead to defaulted loans and deemed distributions. Having just one loan outstanding at all times can help avoid that error.

There are many things with the plan you can’t control, but you should avoid any errors that are under your control.

There are so many articles for plan sponsors (I’ve written quite a few) where they go on and on about what plan sponsors need for a successful 401(k) plan.

Rather than go into a whole diatribe, here is a Reader’s Digest of what good 401(k) plans have:

1. The leadership of the 401(k) plan understands their duty as plan sponsor and plan fiduciary.

2. A third-party administrator (TPA) who does a competent job in plan administration.

3. A financial advisor who understands the retirement plan business and understands that their real role is minimizing the plan sponsor’s liability.

4. A plan design that fits their needs, goals, and pocketbook.

5. An investment lineup that isn’t too large that it increases participant confusion which depresses the rate of salary deferrals.

6. Communication and technology that will get plan participants more engaged which would lead to higher participation.

7. A review of costs and plan providers to make sure what works still actually does work.

8. An ERISA attorney on call when they need them.

9. An auditor (when the plan needs an audit) that gets the job done competently and ahead of any Form 5500 deadline.

A new report by research consultant Corporate Insight (CI) highlights that TIAA, Fidelity, and T. Rowe Price provide the best digital experiences among U.S. recordkeepers.

The report, titled “DC Plan Sponsor Website Experience Benchmark,” evaluates the digital experiences of leading recordkeepers in the country.

In this inaugural report, Corporate Insight recognizes TIAA as the top-performing recordkeeper, achieving a score of 77 out of 100. Fidelity follows closely with a score of 76, while T. Rowe Price comes in third with a score of 74. Overall, scores in the report range from 77 to 45.

A rising number of plan participants are making early 401(k) hardship withdrawals. A report by Vanguard found that 4.8% of participants initiated a hardship withdrawal in 2024, which us up from 3.6% in 2023.

What will happen in 2025? That all depends. Is this market correction just a temper tantrum dealing with temper tantrum tariffs? Or is this the harbinger of a recession? Time will tell and when times are tough, people lose jobs and people have financial hardships.

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.

I’ve been in the retirement plan business for 26 years and I’ve been through a few recessions in that time. There was the dot-bomb implosion, added by 9/11. Let us not forget when our entire financial system was on the verge of collapse in 2008.

While the market is going through a correction, participants and plan sponsors panic. Panicking is a mistake. When participants panic, they switch equities for fixed income and lock in their losses. Plan sponsors panic and decide they no longer want a 401(k) plan.

Markets are correct and that’s the nature of things. There are lows and highs, it’s not a consistent lineup. Whatever you do, don’t panic, and don’t let participants panic.

The U.S. District Court for the Northern District of California has decided not to dismiss a class action lawsuit against The Clorox Company and the employee benefits committee of The Clorox Company 401(k) Plan. The lawsuit claims that Clorox violated its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by using plan forfeitures to offset its employer non-elective contributions to the plan rather than reducing the administrative costs for plan participants.

Initially, the complaint was dismissed without prejudice; however, the district court later determined that the amended complaint adequately alleged breaches of ERISA’s duties of loyalty and prudence. In its decision, the court noted that the plaintiff’s arguments suggested Clorox was motivated solely by self-interest and failed to engage in a reasoned, impartial decision-making process, as there was no other justification for its actions. The court concluded that the plaintiff had sufficiently stated a claim regarding the duty of loyalty. The court also rejected Clorox’s argument that the language in the plan document permits the allocation of plan forfeitures to offset employer contributions. The court pointed out that Clorox’s argument assumes no fiduciary breach occurred, a matter that remains to be decided. If a breach is established, the court stated, adherence to the plan document would not absolve Clorox of liability.

The average Self-Directed Brokerage Account (SDBA) 401(k) balance at Charles Schwab finished the fourth quarter of 2024 at $352,605, up by 13.6% since 2023, according to Charles Schwab’s latest SDBA Indicators Report.

SDBAs at Schwab experienced a 1.5% increase from the third quarter of 2024 when the average balance was $347,437. It should be noted that the S&P 500’s gain was greater than 20%.

Advised accounts held higher average account balances than non-advised accounts, $537,037 vs $311,627.

Former Angels pitcher and current Angels broadcaster Mark Langston will be the guest for our event in Anaheim at Angels Stadium on Thursday, June 5th.

For just $100 or $50 each for multiple attendees from the same firm, you can attend and get 5 hours of content, lunch, a stadium tour, and meet Mark Langston.

Sign up at that401ksite.com.

The Senate approved President Trump’s nominee to be the next Secretary of Labor.

Lori Chavez-DeRemer was approved by a vote of 67-32. Chavez-DeRemer was formerly a Representative for Oregon’s 5th District.