The Rosenbaum Law Firm P.C. Blog

Fee disclosure regulations and a whole bunch of excess fee settlements in litigation have curbed excessive fees. So ERISA litigators, especially on the low end, are trying to. find angles for litigation.

The Blackrock Target Date Fund cases were abysmal and plenty of litigators lost their shirts in fronting these losing cases. Now, we have cases regarding forfeitures and using them to reduce employer contributions. Unless these plans violate the written provisions of their plan documents, I think they have nothing. Time will tell and time will what other cases they will conjure up.

The small business part of the 401(k) business is a bit tough, a recent survey shows that.

A survey from Capital Group found that main reasons for small businesses not creating retirement plans were costs, complexity, and concerns about the size and stability of their business.

305 employers were part of the survey, 105 offered a retirement plan and 200 did not. About 75% of the businesses in the survey that lacked a plan said they were interested in creating one, but only 13% said it would happen in the next six months.

The reasons employers gave for not offering a plan were about complexity and expense. Thirty-nine percent said their business was not large or stable enough, 35% cited limited administrative resources, 32% said they didn’t know where to start, and 32% said plan creation is too expensive for them. For smaller companies, I think Pooled Employer Plans and educating sponsors about them, can go a long way in breaking down the barriers.

I got a phone call from a broker who wanted to give me a free 401(k) analysis. I’m sure the call was from Form 5500 where I’m listed as a plan sponsor. The broker had no idea who I was or what I did for a living, but it doesn’t say I’m an ERISA attorney on Form 5500. I don’t know what the batting average is on these phone calls, but it’s probably really low.

In my mind, writing content that engages plan sponsors and plan providers is the way to grow business. There have been so many people over the years who tried to sell me their services on search engine optimization or some other service that probably would net me far fewer clients than what my articles have drawn. To me, the content is better than any other form of advertising, it’s like a business card that truly engages the audience I need: plan sponsors and providers that will refer plan sponsors. To me, drafting articles is a lot easier than cold calling and dealing with a lot of hangups and no answers.

United Airlines has filed a lawsuit over an alleged scheme with an advisory firm and a scheme to get loans through pilots’ self-directed brokerage window.

United Airlines, Inc., United Airlines Retirement Plans Administrative Committee, and the United Airlines Pilot Retirement Account Plan filed a lawsuit against Keep Safe Investments, LLC, J&K Connect, and Kristi Berge. The lawsuit claims that the defendants concocted and carried out a “scheme by and among Defendants to obtain control over Plan assets in violation of the governing Plan documents and by fraudulent means, and to improperly use those assets for personal gain.”

The scheme involved a self-directed brokerage account (SDBA) the plan included as an investment option. A participant using that window, had to acknowledge that (1) their advisor will only be permitted to withdraw assets from their account to pay advisory fees, and (2) any and all amounts deducted from the account as advisory fees must be for advisory services related to assets in the participant’s brokerage account.

It is alleged that Berge and/or Keep Safe entered into contracts with plan participants, for them to provide investment advice. The problem is that plan participants entered into agreements with J&K, under which the participants agreed to make a loan from their brokerage account to J&K, paying 10% interest annually, over 5 years, while identifying the loan as payment of management fees. The scheme was uncovered when Schwab, as recordkeeper, alerted United, as to excessive management fees being charged against these self-directed brokerage accounts.

When a friend or family member asks for advice upon leaving a job, I always tell them to rollover their account to an Individual Retirement Account. Of course, I’m not an advisor trying to push product.

I think any fiduciary rule should protect participants from unscrupulous providers, pushing high-commission products. It’s one of the dirtiest parts of the 401(k) plan business that needs to be addressed.

If you have a retirement plan with more than 100 participants with account balances, you probably have a plan audit (if you have more than 120 participants, you do). Like with any plan providers, there a lot of great auditors out there and some not so good.

So if you’re auditor brings up issues dealing with plan compliance, confirm those findings with plan providers and/or ERISA attorneys because auditors maybe great at accounting, they aren’t legal experts. I have an advisor-client (cheap plug here) who asks me to confirm what the auditors are saying on the compliance end and occasionally, they’re wrong and their answers could lead to compliance headaches especially where the Department of Labor and Internal Revenue Service are concerned.

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

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

One of the thankless parts of my job is dealing with plan sponsors with large issues and no sense of urgency in fixing them. The large issues, usually deal with a third-party administrator (TPA) that hasn’t done the work or won’t hand over the work, which kept the plan in compliance.

As a plan sponsor, you can’t dilly-dally with multiple 5500s outstanding and missing documents, dating to the 1990s. in the end, the problem, fault, and expense, will lie with you. The more time you waste and do nothing while the TPA doesn’t respond, means more potential liability and expense when the Internal Revenue Service and Department of Labor, target you.

I always believed that former employees were better off rolling out their 401(k) money into a rollover. I still do. When my wife changed jobs about a year ago, it was probably the first thing she did.

Years ago, I had money in my old law firm’s 401(k) plan. I met a broker who I was networking with, who sparked my interest in a rollover. His firm was selling a REIT for long-term stay hotels. I made the switch, unwisely. While the stock market tanked, my rollover IRA was parked at a REIT that wasn’t publicly traded and pretty much, inaccessible. It eventually fell under an SEC complaint against the brokerage firm. The broker I used, switched jobs and joined another broker-dealer. I hung up on him when he disparaged the investment that he previously sold me. I never heard from that guy, ever again.

While most advisors work in the best interest of plan participants, I support the best interest exemption, applying to rollovers. Shame on me for being sold a high-commission product, but more innocent participants should be protected.