The Rosenbaum Law Firm P.C. Blog

When it comes to health and fitness, you constantly hear studies about what foods fight or cause cancer. Of course, those studies are then debunked. I remember how oat bran was cited to cut down on cholesterol and how margarine was better than butter. Plus I have heard how coffee can prolong life or kill you. I joked that one study will suggest that constantly eating broccoli will cause cancer too.

I blogged once about how the paranoia in me figures that a plan provider that quickly cuts down their fee might have been overcharging the client, to begin with. People tend to think I have a bias against plan providers such as third-party administration (TPA) firms and I certainly don’t because I see the overwhelming value of a good TPA.

With fee disclosure regulations around for 13 years and constant news articles about 401(k) fees, I think the fascination and concentration on fees could be detrimental if that is the major or sole criteria in selection plan providers.

401(k) plan sponsors, as plan fiduciaries have important responsibilities. These responsibilities include: acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them; carrying out their duties prudently; following the plan documents (unless inconsistent with ERISA); diversifying plan investments, and paying only reasonable plan expenses.

While paying unreasonable plan expenses is a breach of fiduciary duty, picking providers solely or mainly because they are low in fees can also breach a fiduciary duty. Retirement plan sponsors also have a duty of prudence as one of their fiduciary duties. Prudence is about the process of making fiduciary decisions. Prudence requires the plan fiduciaries to document decisions and the basis for those decisions. So in hiring any plan provider, a fiduciary should survey several potential providers. By doing so, a fiduciary can document the process and make a meaningful comparison and selection.

Governmental contracts are typically decided by the lowest bidder. Sometimes it works, but lots of times it doesn’t. The same thing goes with selecting plan providers. There are many low-cost providers out there and some do a very good job and some do not. Some low-cost TPAs may be good if there is a limited amount of work on a 401(k) plan that has a safe harbor design and terrible if the plan requires a discrimination test.

Paying only reasonable expenses is not the same as paying low expenses. Plan provider expenses are less about cost and more about value. A financial advisor charging 15 basis points providing no help in the fiduciary process such as developing an investment policy statement, reviewing investment options, and educating participants in a participant-directed 401(k) plan is less reasonable than paying another advisor 50 basis points to serve as an ERISA §3(38) fiduciary. Why? The advisor charging 15 basis points is increasing the plan sponsor’s liability as a fiduciary because they are doing nothing while the ERISA §3(38) fiduciary is assuming almost all of that liability. Reasonableness is not about cost, it’s about the value of the services provided. A TPA that can help develop a plan design that maximizes contribution for highly compensated employees through a safe harbor/new comparability or a cash balance design is a better value than a TPA who only knows a 401(k) plan with comp-to-comp allocation.

Plan sponsors need to focus on the competency of plan providers, the services they offer, and the value they provide. Concentrating just on how much a provider charges may cost more in the long run if that provider provides incompetent services. I have seen too many plan sponsors forced into the Internal Revenue Service correction programs to fix the errors of plan providers that were picked solely on cost.

Retirement plans with more than 100 participants with account balances require a CPA audit for their Form 5500. However, small plans with less than 100 participants may sometimes require an audit. This often happens when more than 5% of the Plan’s assets are invested in what is called non-qualified assets and a fidelity bond wasn’t purchased in the amount of the non-qualified assets.

For many years, this client held a partnership interest in a privately held real estate partnership that exceeded 5% of assets and was considered non-qualified according to the Department of Labor’s guidance. The previous third-party administration firm (TPA) never raised the issue of the 95% rule, even though it’s been around for years. Of course, this issue only pops up after they make the transition to a new TPA. The new TPA tells the client they need an audit for $10,000 and the audit should have been done for years.

If this client never changed TPAs, would they have ever noticed this error? Of course not, because the lousy TPAs out there have no checks and balances to ensure proper administration. The good TPAs have a system of checks and balances where work is reviewed, checked, and checked again.

I hate to shill, but I stress the need for an independent ERISA attorney who can discover these errors. A review of Form 5500 and a plan asset schedule would have easily uncovered this. As stated before, my Retirement Plan Tune-Up is a legal review that looks at the plan documents, administration, testing, Form 5500, and the investment policy statement for a flat fee of $750.

We always tell plan sponsors to keep ERISA records for 7 years. In this day and age of scanning and PDFs, should mean you don’t need to throw anything out if it’s saved online. The reason I hate for plan sponsors to throw anything out is because some former participant who terminated 25 years ago, has something from the Social Security Administration that they have a benefit for them. I have never had a situation where that notice was accurate and that a former employee had money there.

Hopefully, the Department of Labor’s new lost and found database will have accurate information to show former employees of actual benefits, instead of a statement of benefits they cashed out of when they left.

There have been 25 cases where plan sponsors have been sued over their right to use forfeitures to reduce employer contributions. 7 cases have had motions for summary judgments made by the plan sponsors. 2 cases have survived the motion and 5 cases have been thrown out. The latest winner is Honeywell. In New Jersey, Federal Judge Padin granted Honeywell’s motion and dismissed the plaintiff’s complaint without prejudice.

The plaintiffs in this case claimed that using forfeitures to reduce the plan sponsor’s contributions violated ERISA’s fiduciary duties. They argued that Honeywell always used forfeitures to reduce employer contributions and that its decision to do so constituted a breach of ERISA’s fiduciary duties of loyalty and prudence, as well as a breach of the “anti-inurement” provision in section 403(c)(1) of ERISA.

While Judge Padin said that the use of forfeitures to reduce contributions was a fiduciary decision, the Judge suggested that the plaintiff’s allegation that every time a plan administrator chooses to use forfeitures to reduce employer contributions it violates its fiduciary duties under ERISA is so broad as to be implausible. The plaintiff would have to show that such a decision was an actual breach.

People like to read, and so do I. They also like to read articles and find out information, especially if it can save them money. So they read about the opportunity where through a 401(k) plan, they could put away over $40,000 in an after-tax voluntary contribution. Of course, the plan has to offer that old thrift provision, but these articles fail to mention that voluntary contributions are all subject to the ACP test, like a matching contribution. Even worse, a safe harbor 401(k) doesn’t stop the ACP test.

So unless it’s an owner-only plan or the person wanting it is a Non-Highly Compensated Employee, the chances that it can work are slim to none—ever slimmer than that. So, for the financial journalists, please don’t give false hope to business owners with employees that they can save more when an ACP test is a huge impediment.

For the last two months, I had two phone call conversations with plan providers that I haven’t talked to, in some time. The reason I didn’t talk to either person for a long time, was because they were working for bosses who I had issues with. One boss terminated our document drafting relationship without notice (that required me to have my document drafting subscription and lose all my prior data) and the other, was a third-party administrator that tried to shake a plan I worked on for $80,000 in duplicitous fees.

Honestly, you can’t fault the employees of plan providers where the bosses are unreasonable. Expecting people to stand up for you and what’s right isn’t likely to happen when these people have paychecks signed by unreasonable bosses. Believe me, I have worked for quite a few of those people. That being said, the point here is that when working with plan providers, you should never burn your bridges. It’s a small industry and there may be times when you have to call on people, who have been burned by someone close to you.

In a further consolidation of the retirement plan business, Voya Financial, Inc. announced that it has completed its acquisition of the OneAmerica Financial, Inc. full-service retirement plan business.

Thanks to the September 2024 purchase, Voya now serves approximately 60,000 retirement plans supporting nearly 8 million participants, with $670 billion in assets.

Walgreens, one of the largest retail pharmacy and healthcare providers, announced the launch of the Walgreens Student Loan 401(k) Match Program. This new benefit, available beginning in January 2025, will allow their plan participants to qualify for company 401(k) match contributions as they pay down their student loans.

The Walgreens Student Loan 401(k) Match Program treats participant student loan payments like contributions to the Walgreens Retirement Savings Plan “401(k).” Walgreens matches eligible student loan payments up to 4% of eligible pay. Participants are generally eligible for company matching contributions after one year plus 1,000 hours of service.

For small and medium-sized businesses, I don’t see much demand for adding this benefit. Larger corporations like Walgreens, will certainly want to add this as some sort of incentive for their current and potential employees.

The Department of Labor’s Employee Benefits Security Administration (EBSA) launched the public Retirement Savings Lost and Found Database, an online tool designed to help former participants and beneficiaries find retirement plans that may still owe them benefits.

The database was created as part of the SECURE 2.0 Act of 2022. It allows individuals or their beneficiaries to search for lost or forgotten retirement accounts and receive guidance on how to claim their funds.

As long as the information provided is accurate, this is something that so many of us in the retirement plan space can get behind.

Small business plans that require no testing such as a SIMPLE IRA sound great on paper, but they create a nightmare when you want to save more for retirement as an employer.

The problem is that a SIMPLE plan has to be the exclusive plan for your business for the year. If you want to put more into a defined benefit plan or benefit from the higher contribution limits of a 401(k) plan, there are certain limitations for mid-year changes (even with recent law changes). You may have to wait for the year to end. The bigger problem is when plan providers set you up with a new plan and don’t ask if you have a SIMPLE or you just don’t volunteer that you do. There are a whole host of compliance issues when you set up a new plan in a year where you have an active SIMPLE. While competent plan providers will ask you if you have another plan, other providers may just be too interested in a sale to ask. Either way, SIMPLE plans aren’t that simple when you want to save more for retirement.