There is still big business with small plans.
Empower has reported it has achieved sales of more than $10 billion in new retirement plan sales, amounting to some 3,300 in new plans and covering the retirement needs of approximately 250,000 new participants for 2023.
Empower has total assets under administration to more than $1.4 trillion on behalf of 18.3 million individuals as of September 30, 2023.
The best thing I did in my professional life was starting my own practice. The only thing I maybe miss from working at a business is the camaraderie with certain staff. Aside from the backstabbing co-workers (every place had that one person), the thing I miss the least is the Holiday Party.
Perhaps I’m a malcontent like Larry David, but when you don’t get a holiday bonus, you’d rather have the money for the Holiday Party invite, than the actual invite. It always felt like work, without being paid, especially the places where they wouldn’t pay for your spouse or significant other to attend, so you’re trapped for about 3 hours with people that you are trapped with, for 40-45 hours during the week.
When my father’s company had a holiday party, it was fun since it usually corresponded with the end of my Fall school schedule and I didn’t work there. I do remember one year, probably 1990-1991 when things were rough, and no holiday bonuses were not handed out. That caused an employee boycott of the party. I didn’t empathize at the time because I didn’t work there.
If you’re a boss and having a holiday party, why do you do it? If you’re handing out holiday bonuses, I get it. If you’re not, isn’t it better to give the employee the $100-125 in cash, than a holiday invite? When my father’s partner and certain former bosses threw a party, I knew they did it for themselves and not for the employees. Just remember why you throw it and how the employees may take to it or not.
Most errors I have seen through plan audits are typical. It’s usually late deferrals or a screw-up on the definition of compensation. Yet there can be some true horror shows out there, I’m talking about catastrophic errors that can lead to disqualification.
The catastrophic errors that will lead to a plan disqualification often result from the failure (usually intentional) of plan sponsors to not include employees for purposes of covering them under a plan. Could be a 401(k) plan with employer contributions, but usually a defined benefit plan. Sometimes the intent was caused by an actuary, other it can be for the advisor or the accountant. The controlled group rules are very basic, so I would be surprised if the lack of coverage wasn’t intentional. There are a lot of great providers out there, but a lot of jokers, that put plan sponsors and their retirement savings at risk.
They say change is good. Some changes are good, and some changes have growing pains. I’m a big fan of retirement plan coverage, so allowing long-term, part employees to defer will be a good thing while maintaining full-time service requirements for employer contributions.
The change will have growing pains, with many plan providers and plan sponsors not being ready for the change. That may mean missed deferral opportunities and corrections that need to be made. It will take some time to sort things out, but I think it will be a good thing for the retirement plan business.
It sounded like a great idea at the time. An alumni association for a student organization was being formed and with my expertise in fundraising, I was asked to be on the fundraising committee.
The committee had one meeting and got bogged down when two non-lawyers were arguing with me about selling clothing with our student organization logo on it and whether it constitutes unrelated business income (it does not), We have never had a meeting since.
A retirement plan committee is all about running a prudent process for your retirement plan. It needs to be there, it needs to work, and it can’t get bogged down in minutia.
When drafting new 401(k) plans, I always recommend allowing for a loan provision. I know there are quite a few plan providers who don’t want any provisions that allow “leakage” of retirement assets, but I believe that when times are tough, plan participants should have access through a loan that they can repay.
As far as loans go, I only want one loan outstanding at a time. If participants want a loan, fine, but let’s just have one crack at it. A 401(k) plan shouldn’t turn into a payday loan-type operation. However, the real reason that I’m against multiple loans is the difficulty in recordkeeping. Recordkeeping multiple plan loans can be an absolute headache especially when it comes to recordkeeping repayments. I’ve seen too many situations where errors in recordkeeping let one or more loans go into default and become a deemed distribution or a prohibited transaction when not dealt with correctly.
If you ask for trouble, you’ll get it and I think that plan sponsors offering multiple plan loans are asking for it by allowing multiple loans that can only lead to a headache.
My latest article for JDSupra.com can be found here.
Employee Fiduciary, LLC has launched a new calculator to demonstrate the future value of 401(k) fees. This tool is designed to show retirement savers how much they can increase their savings in retirement by lowering their 401(k) fees today.
The calculator, available now will show users a view of how fees can impact their retirement.
These are hectic times, so we always look to what participants do in the 401(k) plans to see what the industry is up to. While salary deferrals in 401(k) plans have remained consistent, participants have increasingly been withdrawing their retirement savings through hardships or loans.
According to Fidelity Investments’ 2023 third quarter shows that 2.3% of workers took hardship withdrawal, up from 1.8% in the third quarter 2022.
In Q3, 2.8% of participants took a loan from their 401(k) plans, which is the same as Q2 and up from 2.4% in Q3 2022.
The percentage of participants with a loan outstanding has increased slightly to 17.6%, up from 17.2% last quarter and 16.8% in Q3 2022.
Similarly, in-service withdrawals—where an individual may choose an in-service withdrawal rather than a loan if they prefer to assume taxes and penalties and not have to repay the amount they withdraw—inched up in Q3, rising to 3.2% of participants, up from 2.7% from a year ago.
It’s amazing sometimes how people are blind to conflicts of interest that are as clear as day. In my local hamlet, the Library Board hired a School District board member as their attorney even though there is a financial relationship between the Library and the School District. The attorney for the VolunteeFirefighterer District was hired as the Library’s director of community activities (the position is now paid) while the Library board is stuffed with his cronies that he either got elected or appointed. In addition, his wife was a Board member until the time he was hired. Some people are ethically challenged.
As a retirement plan provider, you need to understand where there is a conflict of interest if someone you know hires you. Whether it’s a family member, golf club, church, or bank where you serve as an advisory board member, you need to identify any potential conflicts of interest.
While a plan provider needs to understand the prohibited transaction rules under ERISA and the Internal Revenue Code, a plan provider should also identify the non-retirement plan rules on conflicts of interest. For example, if you are on a private school committee and you are hired as the school’s retirement plan advisor, you may not have an issue with the prohibited transaction rules, but you may have a problem with the school’s rules on conflicts.
Nepotism is as bad as cronyism, so getting hired as a retirement plan advisor because you’re related to a decision maker is also a potential problem. It might be Kosher with ERISA and the Internal Revenue Code, but it may not pass muster with the courts and/or the Department of Labor under review.
Just because something might be OK with retirement plan rules, it may not be good for the organization or person that did the hiring. Like I always say: the appearance of impropriety is reason enough to avoid a situation.
