The Rosenbaum Law Firm P.C. Blog

Walgreens announced the launch of its Student Loan 401(k) Match Program, a benefit for student loan borrowers who are 401(k) participants that were made available by the SECURE 2.0 Act of 2022.

The benefit will be available to plan partcipants in January 2025 and will allow participants to qualify for company 401(k) match contributions as they pay down their student loans.

The plan had more than $11 billion in assets as of plan year 2022.

According to Walgreens, roughly 30% of their employees are facing financial debt from education—including more than half of its pharmacy team members. Pharmacists have an average student loan debt of $170,000.

Walgreens will match eligible student loan payments up to 4% of eligible pay. Employees are generally eligible for employer matching contributions after one year of work and 1,000 hours of service.

It’s all friendly between the plan sponsor and the Third-Party Administrator (TPA) until the plan sponsor wants to make a change. Then it could get nasty when the TPA wants to be compensated for doing work for the reconversion process.

I’ve been on both sides of the coin, as an ERISA attorney for the TPA and for the past 17 years, on the side of the plan sponsor. In a world of fee transparency, the termination of the TPA is when things are still murky. This is an area where the Department of Labor (DOL) could add some transparency for once and all. It is my opinion that if a TPA doesn’t mention termination/deconversion fees in their contract, they shouldn’t be. Entitled to them. That’s my two cents and I imagine that continued abuses by certain TPAs will eventually lead to DOL action.

We have a Pooled Employer Plan (PEP) for so many things, so a Pot PEP seems OK.

The North American Companies Council (NACC), a 501(c)(6) not-for-profit in the cannabis industry started offering a 401(k) Pooled Employer Plan (PEP) to its members. The PEP serves “cannabis-related entities across the country.”

CuraFin Advisors, is the PEP’s 3(38) investment manager. Group Plan Systems (GPS), will be the Pooled Plan Provider (PPP) for the PEP. AmericanTCS’s American Trust Retirement will provide recordkeeping and third-party administration. AmericanTCS’s American Trust Custody will serve as sub-custodian, and Bankwell will serve as custodian.

When drafting new 401(k) plans for clients during the middle of the year, I like drafting them with an effective date of the first of the year and with deferrals effective as of when they can run the plan with payroll. Like with Apple, I think simplicity is the ultimate sophistication. A short plan year requires a proration of the annual compensation limit. This could be an issue if Highly Compensated Employees want to maximize their deferrals in a non-Safe Harbor plan and with the short plan year, are the only ones that could do that.

Of course, what I like is irrelevant to the plan sponsor who may have to fund contributions. By pro-rating the Plan year and the compensation, they pro-rate their contributions and could save some serious money, especially if the plan is a safe harbor. I like what I like, but I let plan sponsors figure out how to spend their money.

In England, many of the top pubs are owned by British breweries because watering holes are an effective means of beer distribution. Pepsico (owners of Pepsi) used to own Yum Brands (KFC, Taco Bell, Pizza Hut, etc.) for that very same reason.

The 401(k) industry is dominated by mutual funds, so it should come as no shock that many mutual funds companies offer services as a third-party administrator (TPA) because it’s an effective means of distributing their mutual funds. Mutual fund distribution is extremely important for mutual fund companies because their bread and butter are the funds’ asset management fees and more assets under management equal more revenue for the mutual fund company.

While many mutual funds companies only offer TPA services for larger plans, there are a few mutual funds companies that have been rather aggressive in offering TPA services to small and medium-sized plans. While mutual fund companies do offer an attractive alternative as part of a one-stop shop, plan sponsors are under the impression that the mutual fund companies’ TPA services are free.

As shown in fee disclosures that you should be getting as a 401(k) plan sponsor, there is no such thing as a free lunch or free 401(k) administration. Mutual fund companies make their money as a TPA through those very same mutual fund management fees that I had discussed earlier. Many of the same companies that offer TPA services are the very same mutual funds companies that offer revenue sharing or sub-TA fees to TPAs for plans that use their funds. So by keeping plans under their roof, these mutual funds companies can keep their revenue sharing/ sub-TA fees to themselves. These mutual fund companies also guarantee the fees they make, by requiring that a percentage of a plan’s assets (up to 100%) be invested into their proprietary mutual funds.

For plan sponsors and trustees who serve as fiduciaries under ERISA, it is a question of the prudence rule and whether it is prudent to offer investments into a specific mutual fund company, only because that mutual fund company is the TPA. While some mutual fund companies have sterling reputations, there are still several mutual fund companies that have been tainted by the late trading scandals of the last decade, as well as poor performance and high fees. All plan sponsors that utilize a mutual fund company as a TPA should understand that there is a cost involved with their plan’s administration, as well as be advised as to the standing of the mutual fund company within the entire mutual fund industry to make sure it doesn’t become the next Steadman fund family.

Plan sponsors should consult with their 401(k) financial advisor to determine whether a mutual fund company as a TPA is the right fit for them. Mutual fund companies may be an attractive option for some, but plans that offer what is known as out-of-the-box provisions may not be a good fit, as well as a plan sponsor that wants unbundled options in the selection of mutual funds.

Fidelity is clamping down on third-party access to 401(k) plans, which will likely restrict outside advisors from managing clients’ assets in those accounts.

Fidelity said it would “begin taking steps to prevent platforms reliant on credential sharing from accessing and taking action in customer accounts held at Fidelity.”

This will be an issue for many fintech companies that specialize in giving advisors a way to access clients’ accounts without having 401(k) participants give advisors their login credentials directly.

Missing that deadline to file a Form 5500 is a huge problem. Sometimes people forget even when the Third Party Administrator (TPA) completes it promptly. I’ve had clients not realizing they had a year or two years’ worth of 5500s that needed to be filed.

The greatest mistake they made was filing those late 5500s. Why? Well, they didn’t file those Form 5500s, coupled with a contemporaneous filing of an application to the Department of Labor’s Delinquent Filer Voluntary Compliance Program (DFVCP). By not filing with the DFVCP, a plan sponsor can get a crippling penalty of $150,000 per year (depending on how long the Forms are outstanding). It’s unsettling when the penalty amount of the DFVCP could be just $1,500 maximum.

The problem is so many plan sponsors aren’t aware of this option and there is only so much a TPA can do. So that’s why I’m mentioning that filing a late 5500 without DFVCP is a weapon of mass destruction.

When you start fixing up the house (for me, a never-ending battle) and replacing appliances or items like the front door or the roof (had to fix it again), you realize that the replacements are more energy efficient. Replacing that old refrigerator or that washing machine can lead to some savings in your energy bills.

When it comes to retirement plans, there are so many of them that are inefficient in either their cost structure or plan design. While cost structure will be all disclosed to plan sponsors (who have the duty as fiduciaries to determine their reasonableness), plan design inefficiency is something that won’t be discovered until the plan goes through an independent review (like my Retirement Plan Tune-Up) or takes the plan to another third party administrator (TPA). Inefficient plan designs come in all sorts, but it wastes money like that 40-year-old furnace I replaced almost 20 years ago.

An inefficient plan design wastes money because it either makes less cost-effective contributions or it doesn’t maximize tax-deductible contributions to highly compensated employees. So it either wastes money in unnecessary contributions or is inefficient for tax savings.

In terms of wasting money, it could be a defined benefit plan that has outlived its usefulness or it could be a 401(k) plan with a new comparability plan design and a safe harbor matching contribution (because unlike a safe harbor 3% profit sharing contribution, you cannot use the safe harbor matching to offset any new comparability contributions to non-highly compensated employees like you could with the safe harbor 3% profit sharing contribution). A plan that doesn’t maximize contributions could be a 401(k) plan that consistently fails discrimination testing and doesn’t implement a safe harbor plan design or a plan that doesn’t offer a new comparability profit sharing allocation to highly compensated employees when the plan sponsor can afford it.

Retirement plans are a great employee benefit for retirement savings, but you should never forget the tax savings component it has.

So when I consistently state the claim that plan sponsors need to find a quality TPA that is not predicated on price, but predicated on its competency and knowledge of cost-effective, retirement plan design.

When you look for new appliances, you always look for those with an Energy Star sticker. When shopping for TPAs, look for those who would deserve a Tax Star sticker (if one existed, don’t steal my idea!).

I call this time of the year Retirement Plan Crazy Season where plan sponsors decided to change plan providers to get things changing smoothly on January 1. I call it Crazy Season based on NASCAR’s Crazy Season when drivers and car sponsors switch teams by making new deals for the following Cup season.

In addition, it is this time of the year that many employers decide to implement a plan for the current year as the deadline for putting a plan in place for a calendar year plan is now the due date of your tax return.

One of the difficult choices for an employer in deciding to sponsor a plan is which type of qualified plan to sponsor. Here is just a small list:

1. Number of employees to participate: The more, maybe not the merrier. But the more, is less likely you will be pursuing a defined benefit plan and more likely pursuing a 401(k) plan.

2. Age and compensation of the owner(s)/highly compensated employees. Despite what the folks protesting at Wall Street believe, one of the goals of setting up a retirement plan is saving the maximum for the owners and highly compensated employees of the business. One way to achieve maximum savings is the use of a defined benefit plan or a cross-tested allocation that will award higher contributions to these high-paid employees and some of the key factors are age and compensation.

3. How much can the Employer afford to contribute? When it comes to defined benefit plans and safe harbor 401(k) allocations, as well as the near obsolete money purchase plans, the employer must dedicate a fixed contribution each year (which is decided after the end of the Plan Year). Does the Employer see that it has the cash flow over the next couple of years to make such a financial commitment? I can’t tell you how many times I have had sole proprietors say they want to save the maximum under a defined benefit plan. All of a sudden, they needed to pare back after the sticker shock of the maximum contribution that the actuary determined.

4. Ask the Employees. A small business is usually not a democracy but it may be wise to ask employees for input in setting up a retirement plan. Namely, the questionnaire really should be tailored towards trying to identify whether they see this plan as an important employee benefit and if the employer decides the 401(k) route, whether the employees would defer. Now employees shouldn’t have a say in designing the plan since they aren’t going to be the ones funding the contribution.

5. Find a financial advisor. If a small business has a non-owner employee, a financial advisor should be hired. No ifs, ands, or buts.

6. Find a good TPA/ERISA attorney. To have a good retirement plan, you need a good team. I cannot stress the need for businesses to find a solid third-party administration firm (TPA) and a good ERISA attorney (preferably an independent ERISA attorney who will draft plan documents at costs comparable to what a TPA would charge).

When I first started in the retirement plan business in 1998, I worked for a law firm that served as the counsel for a third-party administration (TPA) firm in Syosset, NY.

There was an office worker there named Orville. I remember Orville because I never saw someone who was male who sang “My Heart Will Gone On”, the Titanic theme song sung by Celine Dion.

Orville wasn’t much of a worker, but for some reason, my boss had an affinity for him. When the office work wasn’t panning out, they made Orville a computer tech guy. I think Orville knew as much about computers as my grandmother did. When the tech thing didn’t pan out, they put Orville in an administrative position of dealing with retirement plan distribution to participants. As my boss would probably say: “he’s a good guy, he’s loyal.”

Well, one day, Orville tried to overpay a participant $18,000 more than what the participant had in their account. The person managing the daily operation of this TPA had enough and Orville had to go. From what I was told, Tom had to call my boss to get permission to fire Orville. Never understood why my boss had this loyalty towards Orville. I thought it was a lot of misplaced loyalty.

Loyalty is an admirable trait, but misplaced loyalty is another thing. I see that with many plan sponsors and their misplaced loyalty to their plan providers, which is not reciprocated but is betrayed. Plan sponsors should pick plan providers based on competence and they should check every so often to make sure these plan providers are doing their jobs. Just sticking by providers because you have retained them for so long is one reason to maintain that relationship, but it shouldn’t be the only reason. I had a client being sued by the Department of Labor because the client had used a TPA for 28 years, and wasn’t doing the necessary work in the administration of a defined benefit plan. Saying you used someone for 28 years is nice, you have longevity. It’s not so nice if you discover that they didn’t do the work and as a plan fiduciary, you are the one on the hook for what the plan provider did or didn’t do.

There is nothing wrong with always using the same plan providers, but there is something wrong is that the only reason you keep them is because you have been using them for so long. Every plan provider should be evaluated every so often to determine their competence because you may be shocked when your long-time provider turns out to have thrown you under the boss with poor work.