The more people are covered under the retirement plan, the better we all are.
State-mandated IRA programs for employers that don’t offer a plan have shown the help more employees get covered.
The programs in California, Oregon, and Illinois have increased by 3 percent the likelihood that the residents in these states work for an employer that offers its retirement plan and by 33 percent the probability individuals are saving in those employer plans.
The Department of Labor (DOL) has sued New Jersey concrete manufacturer Di Ferraro Inc. for failure to remit participant deferrals for loan repayments and failed to make promised employer matching contributions to its 401(k) in U.S. District Court for the District of New Jersey.
The DOL, has sued concrete manufacturer Di Ferraro Inc.; company president Mario Ferraro Jr.; and the Crews-Farrell-Mead 401(k) Savings and Retirement Plan (where Di Ferraro serves as an affiliated employer), claiming they have committed fiduciary breaches under the Employee Retirement Income Security Act.
According to the DOL, loan repayments were withheld from some employee paychecks and not properly remitted to the Plan for 6 years. Also, on multiple occasions from January 1, 2015, through December 31, 2021, Defendants failed to send the Plan the required amount of employer matching contributions each year.”
Employees who contributed to the plan via weekly payroll deductions were promised, by Di Ferraro, that their contributions would be 100% matched up to $1,040 per year, the complaint shows.
For multiple occasions in a 6 year period, the Defendants failed to send the Plan the required amount of employer matching contributions each year, according to the DOL
I have often said that a retirement plan is an important employee retention tool. The numbers prove me right.
According to a new study from Voya, 71% of employed Americans say they’re more likely to stay with their current employer if they’re offered an employer-sponsored retirement savings plan.
This is up from October 2022, when just 60% of employees said the same. This is why plan sponsors need to be concerned with their retirement plan or offer one if they currently don’t.
For my first year of law school, I had a renowned criminal law professor. He had a penchant for ties and an odd love for Melrose Place (I was a Dallas guy myself). For his final law exam, the fact pattern for the final exam was based on Melrose Place. I thought I did particularly well and I think I got a B+ (for some reason, our law school didn’t have minus grades). I jokingly said that there was no rhyme or reason for how he graded his exams that he just threw the exam down the stairs and he would assign a grade based on the step it hit.
When it came to working for a particular third-party administrator (TPA), I remember we had a fee for clients terminating our services that we never disclosed nor was ever there a set fee. Our conversion guru would simply go down to our Chief Operating Officer and get a de-conversion fee quote that could be $1,500, $2,500, or $5,000, or anything he felt like. He could quote it based on plan size, whether he liked the advisor or not, or because his stock portfolio wasn’t doing well that day.
There is something to be said about plan providers charging direct fees that the plan sponsor and their advisor could understand and gauge. Even with fee disclosure regulations eventually being implemented one of these days, I believe that some providers will still have fees that plan sponsors will have a tough time understanding what the fees are.
I was busy drafting a new service agreement back in the day for a West Coast TPA so that they could comply with the fee disclosure regulations (cheap plug). The agreement was easier to draft because their fees were rather straightforward. They had a base fee, a per-participant head charge, and an asset-based fee.
I was reading a sample fee disclosure agreement for a TPA that one of the insurance company providers has been sending out. This sample was put out by some pretty reputable ERISA attorneys and to tell you the truth, reading the agreement gave me a headache. The agreement, unlike most agreements drafted by ERISA attorneys, was written in English. What gave me a headache was the different reimbursements that the TPA may be getting from this insurance company. Special programs, special allowances, and special sauce. It’s sort of like Dean Wormer’s “double secret probation” in Animal House. It’s short on details because the TPA has no idea what they will get in these special programs, but Scout’s honor, they will use 100% of these special payments as an offset to the fees charged.
I am a very direct person (which works well with clients, financial advisors, and TPAs I work with; managing partners of law firms, not so much), so I like knowing how much in fees my client might be paying when they sign an agreement with a TPA. I know eventually that a plan sponsor will know how much a TPA working with this insurance company will charge, but I think clients should get direct fee quotes.
I remember when the Enron debacle happened that I never would have invested in Enron because I could not state what Enron did for business in one sentence. The same with TPA fees in their agreements, I would be wary of recommending a TPA where I couldn’t directly state what their fees would be. But that’s just me.
When it comes to technology, people cling on to some old technology because of their fondness for it either because it represents their youth or because they don’t want to change with the times.
I laugh at how many new albums (I still like to use that term) are not only released in digital format, but CDs, and records. I have never been an audiophile and never will be, I’ll never understand why my father’s business partner had to travel to England to get a digital audio tape recorder (it was banned here for copyright issues). But I grew up as a child in the 1970’s and I hated records. They were too big, they were hard to play, and they scratched too easily. Same with VHS, give me Blu-Ray. My $2,000 ($2,000 in 1985 money) Apple IIe was no match for my $800 HP laptop.
When it comes to retirement plans, we do have one retirement plan for the single employer market that is sort of like a record or a VHS tape and that’s a money purchase plan. Money purchase plan is a defined contribution plan that is also a pension plan, so it has a specified contribution in the plan that has to be made every year. For multi-employer (union) plans or some governmental plans, money purchase plans are alive and well as they have replaced defined benefit plans. For single employers, money purchase plans were made obsolete in 2002 when the Internal Revenue Code was amended to increase the deductibility limits on profit sharing and 401(k) plans.
Prior to 2002, the limit on contributions that plan sponsors could deduct on their tax returns was 15% of compensation for profit-sharing and 401(k) plans (which are profit-sharing plans). That 15% limit did actually include salary deferrals (which made no sense since it was employee money). The deductibility limit for money purchase plans was 25% of compensation. So plan sponsors had a money purchase plan for the full 25% limit (or higher than 15%, whatever they could afford) or they had paired plans such as a money purchase plan for a 10% contribution of compensation and a 15% discretionary contribution under a profit-sharing plan.
As soon as EGTRRA changed the limits in 2002 and allowed for 25% deduction limits (which no longer included salary deferrals), I remember merging the money purchase plan into the paired profit-sharing plan or converting the stand-alone money purchase plan into a profit-sharing plan for our clients.
So the point is that unless the plan is designed to benefit union employees or because there are some contractually mandated money purchase plan contributions, I can’t find a reason why employers would keep them, especially if they sponsored both a money purchase and a profit-sharing plan. Perhaps some plan sponsors have multiple plans to benefit different groups of employees (many law firms do that), but there is no reason why a money purchase plan shouldn’t be converted into a profit-sharing plan.
I came across one plan sponsor with a money purchase, profit sharing, and 401(k) plan, all benefiting the same group of employees. What was really apparent to me is that they
had a third-party administrator(TPA) who thought it was more economical for the TPA for the plan sponsor to have 3 plans, instead of just one.
So I would advise plan sponsors to look at money purchase plans that they may still have, as well as financial advisors to look at prospective clients that have. Perhaps there is a legitimate reason to still have a money purchase plan, but perhaps not.
My latest article for JDSupra.com can be found here.
When I was at law school at American University Washington College of Law, I was the Executive Editor of The American Jurist, which was the student news magazine for my final year of law school. I wasn’t a particularly fond fan of my law school, I think they made promises to students that they couldn’t deliver on and some of the great opportunities like their law clinics were only available to a small group of students. For example, while I was led to believe my interest and coursework in tax law would merit my consideration in the tax clinic, I did not get a slot for the tax clinic because my name was literally not pulled out of a hat. So my year as the top editor was dedicating my columns to lambast what was wrong with the school and suggestions on how to improve certain aspects of it like the career services office, the journal and law clinic selection process, and orientation.
Certain students and faculty were very critical of my views because they said my columns would harm the school because potential students would read the columns and then not go to our school because of what I wrote. It was pure nonsense because my columns criticized the school and then offered suggestions on how to fix the problems I pointed out. After I graduated, many of my suggestions were acted upon by the administration and I am proud of my role in helping the school out.
People don’t like criticism, they can’t handle it. If you criticize, you get labeled as a hater. It’s a label to discredit you and your opinion.
Years ago, an advisor I know sent an e-mail to one of the big movers and shakers in the 401(k) industry (who has since retired). The e-mail had a quote from an outspoken columnist who has been critical of the abuses of the 401(k) industry. The 401(k) big shot was very offended by the quote and took many exceptions to it.
My point is that there are enough problems within the retirement plan industry to criticize and simply attacking those that do is certainly not going to help the industry out. Those that try to shout down those 401(k) critics do a disservice to the industry because it is those critics of fees and investments that have helped spur change within the 401(k) industry. That being said, some consistently attack 401(k) plans without a suggestion to improve them or a realistic way to help the retirement savings crisis in the country. When managed correctly, a 401(k) plan is one of the best employee benefits out there that has helped plan participants save for retirement and lower their current taxable income. People within this industry don’t have to be like Anthony’s neighbors in the Twilight Zone episode “It’s A Good Life” and think “nice, happy thoughts.” If you see something wrong within the industry, say something and offer a way to make things better.
Those that believe that the retirement plan industry is perfect and call those that criticize it haters are members of a flat earth society who don’t have tolerance for the free flow and exchange of ideas. There is a lot of right and wrong with the retirement plan business, don’t be afraid to speak up in trying to improve it.
About 20 years ago, there was a medical report that dental plaque could cause heart disease. The cynic in me tells me that this was some sort of dental conspiracy to increase revenue as fluoridated water and other dental hygiene have had to harm the dentists’ bottom line. Regardless of my cynicism, good oral health is an important goal.
While some people only see a dentist when something in their mouth hurts them, many visit the dentist for annual or semi-annual checkups as preventative care, to avoid dental problems later. Brushing, flossing, and checkups help avoid root canals, caps, and dentures.
As an ERISA attorney, sometimes I see myself as a retirement plan dentist. While some plan sponsors only seek counsel from an ERISA attorney when something goes wrong with their retirement plan, there are many plan sponsors these days that seek ERISA counsel as a form of preventative care for their retirement plans. Seeking counsel from an ERISA attorney can be like seeking a dentist in avoiding greater harm. Part of the marketing of my practice has been to advise plan sponsors and their financial advisors that their retirement plan should be reviewed on an annual basis to determine whether it’s being properly administered and whether the expenses for the plan are reasonable. These are preventative steps to avoid potential liability as a plan fiduciary. My Retirement Plan Tune-Up is a legal review where I look at the plan terms, plan administration, and fiduciary to determine what works and what needs to be corrected.
Plan sponsors should review their plans to determine whether the plan still fits their needs and whether there are potential liability pitfalls in plan administration and the fiduciary process.
In my articles and my blog posts, I highlight the potential liability pitfalls that a plan sponsor needs to avoid. Whether it’s the lack of an investment policy statement or high fees, these are pitfalls that plan sponsors can minimize through best practices.
Some critics of my writings (some of them are ERISA attorneys) claims that small to medium-sized employers rarely get sued for breaches of fiduciary duty, so I am in the market of selling useless legal services. I guess that is my version of the plaque-causing heart disease theory. While the chances of a small to medium size employer getting sued are slim, the threat is still there. The chance of getting hit by lightning is remote; we still minimize the risk of getting hit by avoiding standing near trees or staying outside. In addition, ERISA litigation progresses and when ERISA attorneys run out of suing the larger plans for fiduciary duty breaches, where will they turn next? Regardless of the small risk or not, plan sponsors should follow good practices because good practices tend to avoid bad results.
Like their teeth, plan sponsors should have their plans checked on an annual basis to avoid a retirement plan root canal later.
As Stone Cold Steve Austin said once: “Don’t trust anyone.” I’m not that severe in thought, but I do have a mistrust of people.
That’s perhaps why I take issue with allowing participants to self-certify that they are entitled to a hardship distribution.
Under the Code, plan sponsors can rely on the participant’s self-certification that they have experienced hardship and that the participant has no way to satisfy the hardship. Self-certification is only allowed for the first hardship request during a plan year. If the participant requests more than two hardship distributions in one year then the plan sponsor is required to have physical proof of the hardship.
For a plan sponsor to rely on a participant’s information, the participant needs to receive a notice that requires them to preserve the physical documentation of the hardship (and have them readily available at any time upon request. The problem is there is no guidance absolving a plan sponsor of any issues if the participant is less than honest about their hardship or lose the backup for their request. Until there is further guidance, I still recommend plan sponsors still approve of any hardship requests, rather than trusting a plan participant.
CBIZ, Inc. announced that it has acquired American Pension Advisors, Ltd.
American Pension Advisors provides retirement plan consulting and administration assisting more than 1,200 clients in the design, implementation, and administration of all types of retirement plans including 401(k), 403(b), 457(b), defined benefit and cash balance. APA has 14 employees and approximately $2.9 million in revenue.
