The Prop Up

The idea of the prop up, and my issues with it, probably started around the 5th grade at Rabbi Harry Halpern Day School. Dr. Rohn got on the loudspeaker and announced that starting that morning, we would get a new, special cookie with our daily milk break. Up until that point, we were getting a special Burry cookie. You would find them in the local supermarket, sometimes it was fudge, sometimes it was chocolate chip, it was great. So when Dr. Rohn was putting these new special cookies over, we all thought something magical would be given out. Oreos weren’t Kosher at the time, but Hydrox were. Whatever it was, we awaited. So the morning came, and the milk order was accompanied by Kedem tea biscuits. The tea biscuit that the local fruit store was selling 2 for $1. No matter how Dr. Rohn was propping it up, the biscuits were awful for the next 3 years. Anytime I see those Kedem biscuits at Costco or ShopRite, I get a good laugh. Dr. Rohn was a wonderful man, but terrible at the promotion.

One person who was good at promotion was my mother. My Aunt is only around 5 years older than me. My aunt was a very insecure girl, her parents were older Holocaust survivors, my dear grandparents. When my dear grandfather died, my Aunt was only 12. Rather than dealing with that trauma properly through professional help, my family spoiled my Aunt to the point that she received more reparations than her Holocaust-surviving parents ever did. I adored my Aunt, I always looked up to her and always cared about her. But she was weak, she had low self-esteem and she enabled the narcissism of her sisters. She graduated college, got a teaching job through connections set up by my parents, and lasted weeks as a first-grade teacher, never to fully teach again. That was 1990.

My Aunt got married in 1990 to the next prop up. While my college graduating Aunt never achieved that ambition that her MENSA level IQ suggested, her husband lasted a few weeks at the local community college. My mother did so much bragging about my Uncle, raving about what a businessman he was. He owned a hot dog stand at a Long Island mall and a dry cleaning store that had no dry cleaning equipment, someone else did the work. My uncle was a failure at everything he did: as a worker, as a general manager, as a real estate agent, but more importantly as a father and husband. Yet to this day, my mother still pushes him to the moon, even though she truly despises him, and is no longer related to him. Like Dr. Rohn and the tea biscuits, the promotion of my Uncle was a failure.

My sister, I was close with, until I wasn’t. It all started when she started dating a man who had zero personality skills and all he did, was sleep at our house on the weekends, every single weekend. My grandmother (who lived with us) and I despised him. Yet, my mother would rave about him, despite divulging his psychiatric medications and the fact he had spent 10 years doing nothing, except watching his twin nephew and niece for a time. Plus, my mother pointed out, he folded well. I think he once worked at the GAP. His parents were ecstatic that my sister married him, and they moved out of town pretty quickly, afterward At least he was a gym teacher for New York City, which had a pension. I understand now, that this guy, who never really liked to work, retired as a teacher in his early 50s, and is selling crap on eBay to make ends meet. Yet I’m sure my mother is still propping him up.

Around the time my sister was dating “Mr. Wonderful”, I was dating my wife. My wife was pretty, well-educated, and a lawyer. My sister was jealous of my wife and felt rather competitive with her like she did with me. I never felt I needed to compete with my sister, but the feeling for her wasn’t the same. So while my mother was propping up Mr. Wonderful, she said very little of my wife, to the point that her work friends didn’t even know my wife was a lawyer. My wife was wonderful and still is wonderful, but my mother made sure everyone thought otherwise of her. My wife was a threat because, unlike my Uncle and Brother in Law, my mother couldn’t control, or think she was in control (she is not).

My mother never propped me up and never said how wonderful I was. When I didn’t do well in high school because I didn’t try, I’d get thrown insults, that felt like punches to the face. With all my success, I don’t think people care I got a 75 in Sequential Math 4. But my mother probably still does, because she needed my success to validate her insecurities. It bothers her that she can’t brag about my current successes because it’s a repudiation of her narcissism, and people would realize how broken she is.

Psychological abuse is almost as bad as physical abuse. A little encouragement and kind words would have gone a long way, but for my mother, I was always the target. Always the punching bag. Always the one to go out and do errands. But it never mattered, I never got the prop up.

At work, over the years, I’d hear about bosses praising certain employees. I never got the praise. It was always someone else and it was always someone inferior. I’d hear wonderful things about one employee who was going to run the administration side of our third-party administration practice. He was going to be the next Golden Boy and he flopped so hard, that he was demoted quickly. There was the actuary that the boss got for $75,000 annually. The actuary was terrible at everything he did and his claim to fame was that he was caught sleeping on the job,

The older I get, the less I care about what others think. While I always vied for validation from my family that I never got, I finally realized the role of a pop-up. It’s to put over people who would fail on their own. You hardly need to put someone over, who is already over. You don’t need to tout someone who is a success, who is a success. Beware of what someone brags about or touts, because most of the time, it’s a pop-up. When you think you’re getting cookies, you might be getting tasteless biscuits.

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SDBA Account Balances are down

Schwab’s Q3 2023 SDBA Indicators Report, a report on self directed brokerage accounts (SDBAs) shows that average account balances finished at $287,769 for the third quarter of 2023, with an increase of 5.3% year-over-year but down 9.2% from $316,826 in Q2 2023.

Schwab found that equities remain the largest holding at 34.2%, followed by mutual funds (32.7%), ETFs (21.9%), and cash and fixed income (9.7%). Apple once again came in as the top equity holding (12.21%), followed by Tesla (8.79%), Amazon (4.57%), NVIDIA (4.53%), and Microsoft (3.57%). Other leading holdings included Berkshire Hathaway (2.21%), Alphabet (1.78%), Meta (1.48%), and Costco (0.89%).

Both Schwab and Vanguard were the top mutual fund holdings, with the Schwab S&P 500 Index coming in as the leading fund at 5.56%. This was followed by the Schwab Total Stock Market Index (2.53%), Vanguard 500 Index (2.32%), Vanguard Total Stock Index (2.10%), and the Schwab International Index (0.84%).

As for the top ETF holdings, Vanguard Total Stock Market came in at 5.32%, trailed by the SPDR S&P 500 ETF (4.40%), the Vanguard S&P 500 ETF (4.36%), and the Invesco QQQ Trust (4.01%).

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Keybank offers PEP

KeyBank Institutional Advisors (IA) announced the launch of a new pooled employer plan for 401(k) plans that will be effective January 1, 2024.

KeyBank IA will serve as the ERISA 3(38)-investment manager. Transamerica will serve as the recordkeeper, and Pentegra will be the pooled plan provider (PPP), providing administrative and compliance support.

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The audits might be coming

I have handled more audits in the past six months, than in the past 5 years. Whether it’s the Internal Revenue Service or the Department of Labor, I’ve had many cases. Most are of the garden variety, random audits.

Many times, the audits are a result of a participant complaint to the Department of Labor or a Form 5500 error. Regardless of the reason, you need to be prepared. Work with your plan providers to get the information requested and root out any issues that you find, because I hate surprises, on an audit.

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I can’t imagine the cold emails work

I handle my investments. I work with financial advisors around the country, they are the best referral sources for clients. If I ever made enough money where I need a financial advisor, I’ll likely consider someone I. have worked with and trust. So I’m not likely to respond to a cold email.

Recently, I got an email from an advisor hundreds of miles away, wanting me to consider hiring him. The email was pretty awful, he emailed: “ I provide investment management and financial planning services to individuals and families. Many of my clients have similar backgrounds to yours and I wanted to ask if you have any interest in talking.” What background? As an attorney, as a malcontent former TPA employee? The email is too broad and so cold, I can’t imagine it ever working. What do I think works? Networking, providing content to fellow providers. Anything better something that will be deleted in 3 seconds.

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Audit rule will put some PEPs out to pasture

It looked great on paper, Pooled Employer Plans (PEPs) needed an audit only if they hit 1,000 participants or if they had an adopting employer with 100 or more participants. The Internal Revenue Service and Department of Labor clarified that PEPs with 100 participants or more are subject to audit, rather than the 1,000-participant threshold that we thought was the interpretation in the SECURE Act., which first made PEPs a retirement plan option. Instead, regulators kept the audit rule of having 100 or more participants the same for PEPs as they do for single-employer retirement plans.

What does that mean? It means PEPs with a small amount of participants that counted on no audit, may have to shutter their doors because a $10,000 to $20,000 audit can’t work for them. Will see in 2024, where it goes.

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Define small

I will reiterate that almost all small and medium-sized 401(k) plans are immune from 401(k) litigation by current or former participants because ERISA attorneys aren’t likely to make money. The problem is: what is small? For me, small is something less than $25 million, and medium is less than $100 million.

According to fiduciary insurance data cited by the law firm Robinson Bradshaw, 40% of 401(k) excessive fee suits filed in 2022 were related to plans with less than $1 billion in assets, and 20% were related to plans with less than $500 million in assets. From where I come from, these are big plans.

I will always say that with my clients, I fear a governmental audit far more than a 401(k) lawsuit.

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State mandated plans help the lower paid

My daughter works at the local pizzeria. I can’t imagine they would offer a retirement plan until New York requires them to do so when the state IRA program goes into effect.

Again, I’m a big fan of the state mandate, it increases retirement plan coverage and a recent survey by Gusto (using data from the Colorado and Oregon state programs) shows that the lower-paid employees, would benefit.

Low-income workers are benefiting the most from these mandates, as rates of 401(k) enrollment have nearly doubled across low-income workers subject to the mandate. For Colorado workers making less than $15,000 per year, the share enrolled in a 401(k) plan rose to 16.4% from 8.7% between July 2022 and July 2023, and among workers making between $15,000 and $25,000 per year, the share rose to 18.7% from 9.8% over the same time period.

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State plans push independent 401(k) plans

The reason I like state-mandated IRA programs for employers is because it increases retirement plan coverage and it nudges employers to offer plans of their own since they distrust the government. A recent study by Gusto shows that, concerning the mandated programs in Colorado and Oregon.

In Colorado, lawmakers enacted a requirement that companies with at least five employees participate in a public or private retirement plan starting no later than June 30, 2023. According to Gusto’s data, from one year prior to that date through August 2023, the share of companies with five or more employees offering a 401(k) plan increased to 38%, up from 25.3%.

In Oregon, they have a mandate that requires firms with from one through four employees to participate in an auto-IRA program starting after January 2023. Firms in Oregon with at least five employees were already subject to such a mandate. The share of firms with from one through four employees offering a 401(k) plan rose to 11% in August from 7% in January.

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Provisions That Make Your 401(k) Plan A Bigger Employee Benefit

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

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