The Rosenbaum Law Firm P.C. Blog

The recent news about RiversEdge, the Third-Party Administrator (TPA) accused of stealing plan assets is alarming, but not new. People and providers with access to plan assets can easily steal. The problem is that it’s one of the dumbest crimes available.

Stealing is wrong, but I think criminals have a better chance of robbing a bank with a pantyhose on their head, than a plan provider stealing assets. A pantyhose might give a bank robber anonymity, but a plan provider stealing plan assets will have the theft documented by a reputable plan custodian. Stealing plan assets from multiple plans creates a shell game because plans will eventually have to pay out participants, as indicated in the Department of Labor’s (DOL) allegations. A plan sponsor I met who used defined benefit plan assets to fund his home renovation was caught up by the DOL investigators over complaints by former participants.

In Star Trek VI: The Undiscovered Country, Captain Kirk, and the Enterprise were being attacked by a Klingon Bird of Prey which could fire when cloaked. When Commander Uhura suggested that the Bird of Prey must have a tailpipe, Spock and Dr. McCoy created a torpedo that could track the Prey’s emissions and attack it. Stealing from plan assets is like having a tailpipe or fingerprints that will catch you if you steal from a plan.

Thalidomide was supposed to be the wonder drug that helped women manage morning sickness until they discovered it caused birth defects. Asbestos was supposed to be the ultimate fire-resistant material that was later found to cause mesothelioma when produced or when disturbed. When companies decided to ditch defined benefit pension plans for a cheaper alternative in the 401(k) plan, they also had a hidden danger with a 401(k) plan, but it doesn’t have to be that way. If managed correctly, a 401(k) plan is an effective retirement plan for the employer and employees. If not, it’s a retirement plan thalidomide except the plan sponsor doesn’t know the danger.

The switch from defined benefit plans to 401(k) plans switches the burden of funding retirement from the employer to the employee. If the plan is participant-directed, it also switches the selection of investments from employers aided by financial advisors to the folks who have the least amount of background to make these tough decisions, the plan participants. Too many plan sponsors don’t educate their plan participants to make informed investment decisions and too many plan sponsors don’t have a proficient investment advisor to guide them through the financial process. It doesn’t have to be this way. Getting investment advisors who know what they’re doing and getting participants enough investment education/advice isn’t hard, but too many plan sponsors are too lazy to manage. But it doesn’t have to be this way.

Defined benefit plans have pretty straightforward fees. You know how much annual administration is and you don’t have that luxury with participant-directed 401(k) plans that have multiple fees that can confuse anyone including retirement plan professionals. Too many plan sponsors have been sued because the 401(k) plan fees are too high since plan sponsors have a fiduciary to pay reasonable fees. But it doesn’t have to be this way. Plan sponsors can benchmark their fees to see if they are reasonable, actually, they have no choice; they have that duty.

401(k) plans don’t have to be a hidden danger; all they need is a plan sponsor who understands their pitfalls and wants to avoid the liability that goes with it. That’s the tallest order.

We live in a day and age where information is at our fingertips. Anything we want to know is just a Google search away. Yet many companies interested in starting a 401(k) plan are unaware of the tax credits offered for a plan startup.

According to a new survey, among the small business owners not offering a plan, 72% said they didn’t know about tax credits up to $5,000 being available to cover the costs of starting a 401(k) plan.

While potential plan sponsors can Google these tax credits, plan providers are clearly not doing a great job of letting these companies know that tax credits are available.

A recent study showed that student loan debt has a negative impact on deferral rates and 401(k) account balances. Of course, that’s obvious. Some student loans that students take out, resemble the size of my mortgage that I just paid off. When you have more than $300,000 in debt, deferrals are going to be even harder for those making in the 6 figures.

While SECURE 2.0 allows for matching contributions on student loan payments, I don’t know how many plan sponsors offer it, and it doesn’t change that matching contributions are going to be far less cash than deferrals. Until this country figures out how to deal with the cost of higher education, student loans will still be a drag on 401(k) balances, whether student loan matches or not.

Ascensus and American Funds have finally brought their pooled employer plan (PEP) to market.

The Ascensus | American Funds Pooled Employer Plan is available to plan sponsors and advisers, featuring an open architecture plan menu designed by investment advisory Wilshire including funds, other than American Funds.

The PEP is the first to offer American Funds Target Date Plus.

Ascensus has $1.2 billion in PEP assets under administration, representing about 28,000 savers, according to the firm.

Collective Investment Trust investments were supposed to be a thing for 403(b) plans. It was in the legislation that predated SECURE 2.0, but it never made it into the law.

There are proposed bills that allow it and I support it because 403(b) plans have suffered far too long for expensive products and CITs are a cost effective solution for plan participants.

OneAmerica Financial Partners Inc. announced a rebranding to OneAmerica Financial from simply OneAmerica.

One America is trying to enhance its brand recognition and clarify its work in financial security, offering life insurance, retirement, employee benefits and long-term care solutions, according to the Indianapolis-based firm’s announcement.

The rebrand includes an updated logo and website, with changes to the user experience and the first change to the firm’s logo in more than 20 years, according to the company.

Thankfully, it’s been about 13 years since I’ve had a resume. It wasn’t a fun job and I never knew what people would ask for. I always thought objectives for resumes were silly, but people had them.

Years ago, I worked at a third-party administrator (TPA) where a whole bunch of us left a TPA which was closing, as our block of business was sold to Bisys (now known as Ascensus). About 2 years after we joined this new TPA, some of us were asked to review the resume, of one of our former fellow employees. He was in compliance testing and he claimed he would hold seminars on testing. That was news to us, including the guy working for us, who used to run the day-to-day administration of that old TPA. Needless to say, he didn’t get the job.

Any resume you get, you need to vet. Degrees, job experiences, references, everything needs to be checked out. The greatest liar in the retirement plan business was a guy by the name of Matt Hutcheson, and he only succeeded by creating a career out of wild claims and a PBS Frontline episode.

As a plan provider, you’re involved with retirement plan assets at stake, verifying that what a candidate is saying, is true.

For over 25 years, the involuntary cash-out limit was $5,000. Now, we have an increase. An increase that is optional, but you should enforce it as a plan sponsor.

These mandatory cash-out distributions can be paid out without the consent of the participant or his/her spouse, if applicable. The statutory limit since 1997, has been up to $5,000, but Section 304 of the SECURE Act 2.0 increased the statutory limit to $7,000, effective starting January 2024.

This limit, allows for mandatory cash-outs for former participants, whether they are missing or not. It is a great mechanism for plan sponsors to flush out small account balances. So you should adopt the increased limit.

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