The Rosenbaum Law Firm P.C. Blog

A new finding from Pontera shows that financial advisors prefer 401(k)s over individual retirement account (IRA) rollovers.

Pontera’s survey shows that 59% of surveyed advisors chose not to roll over a client’s 401(k) into an IRA or another account due to better plan benefits and the advisor’s ability to manage these assets in a plan via Pontera.

The survey claims that rolling over a 401(k) into an IRA could come at the expense of “better” 401(k) benefits, lower fees, institutional fund access, tax benefits to employer stock, creditor protections, and loan options. Past Pew Research has estimated that of the $516.7 billion in IRA rollovers from plan accounts in 2018, retail investors could lose $45.5 billion over the next 25 years, and solely from higher fees.

I think the biggest issue is compliance and trying to comply with whatever the Department of Labor will come up with, as what rollover advice must come up with. Advisors, like most people, hate paperwork, and compliance. Unless there is ease by the Department of Labor on fiduciary compliance, expect more of the same.

With my son graduating high school and listening to where other kids are going for college, it seems there were a lot of parents who did a lot of bragging about how well their kids were doing, but the college they are going to doesn’t reflect that. As my grandmother would say: “whoever brags the most, has the least.”

It’s the same as the retirement plan business, you have press releases on how well certain plan providers are doing, yet they might be bleeding money. I remember when I worked for Harvey Berman and he and his partners sold their third-party administration firm to a conglomerate, only for that company to sell our business away, 3 years later. When I asked him about regrets over the deal, Harvey had none because he said they would have gone out of business anyway. The reality was far different than how they touted themselves. The same can be said about providers who knock out press releases the way Mike Tyson knocked out opponents. They might be generating business, but the money used to build them up may mean they are actually in the red. You never know what goes on, behind closed doors.

I’m one of those people who like brokerage accounts where I can buy fractional shares and securities for as little as $1 or $5. That’s why I have Fidelity and SoFi brokerage accounts.

I was contacted by SoFi that I had a margin call of about $340, the only problem is I don’t have a margin account. I immediately contacted them about this discrepancy, because if I didn’t fix it by depositing money, they would sell the securities. Turns out there was no margin call, just a discrepancy on security I own.

These days, especially with cyber theft, you need to check your trust statements for any discrepancies or issues. As a plan sponsor, you need to make sure the money is where you say it is, and any issues need to be fixed.

I would have this recurring nightmare when I was younger, when I would dream that I was back in school, didn’t attend class all semester, and the final for the class was that day. I later learned that this was a fear of failure and when I was younger and working for someone else, that was legitimate.

I guess the fear has become a reality, well sort of. Dealing with a plan sponsor that got hit by a failure to remit a Form 5500 is one thing, the fact that they haven’t even started getting the plan audited is another. Also, having no plan documents since the beginning of the plan, and having no valuation reports or records for the last few years isn’t fun.

As a plan sponsor, saying you have nothing is no answer. You can’t afford to put your hands up and do absolutely nothing. You have to find what you need and avoid the six-figure penalty.

Bank of America released its 2023 Financial Life Benefits Impact Report.

The study showed that the average 401(k) account balance among men is 50% greater than women’s overall ($89,000 vs. $59,000).

However, the gender gap is closing among younger generations. Baby Boomer (ages 58-76) and Gen X (ages 43-57) men have significantly greater account balances than women in their generations (87% vs. 53%, respectively). However, the gap between Millennial (ages 28-42) men and women is only 23%.

In a positive note to the industry, Gen X participants continue to have the highest 401(k) participation rate (65%) across generations, followed by 57% of Baby Boomers and 55% of Millennials. This is fantastic because for years, people were moaning that the industry will suffer when Baby Boomers retire because the younger generations won’t defer.

Yale University won a 403(b) lawsuit filed against them, by Jerry Schlicter’s office.

The suit was filed by Schlicther Bogard LLP, in August 2016.

The lawsuit claimed that employees paid excessive recordkeeping fees in addition to selecting and imprudently retaining underperforming funds. Also, the lawsuit complained about the use of multiple recordkeepers, rather than a single recordkeeper.

Yale prevailed on most counts, in the case. It was a Yale victory, but the jury’s conclusion that there was a breach in allowing unreasonable fees to be charged, but with zero damages reminds me of the USFL v NFL case where the jury claimed the NFL was a monopoly but awarded $1 to the USFL

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

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

When it comes to oral or written communications, it’s important that you play to your audience. Any communication that is above or below the audience’s comprehension is going to be a missed opportunity to communicate your message.

When it comes to 401(k) plan meetings with plan participants for enrollment or re-enrollment, the fact is that most of them suck.

The greatest education I ever received wasn’t at law school and it wasn’t working as an ERISA attorney for 9 years working for third-party administration firms. My greatest education was being involved in student politics and journalism at the State University of New York at Stony Brook (which is now called Stony Brook University).

One of the simplest lessons I learned was from Ron Nehring, who has been a friend of mine for over 30 years and he basically told me that the goal of any organization in recruiting new members is getting them involved. I joined Ron’s political organization because they got me interested, got me involved, and kept on contacting me about other events. The Jewish students organization that I was going to be heavily involved in had a barbecue the weekend before freshman year started. I arrived 15 minutes late and there wasn’t any more food available. I was offered a bagel and people who certainly weren’t Jewish were enjoying a nice Kosher hot dog or hamburger. Needless to say, I didn’t get involved much there.

The point is that most 401(k) plan meetings suck because they really aren’t geared toward plan participants. The advisor conducting the meeting is giving the basics of investments and plan features that aren’t interesting or inspiring. The meetings tend to be really dry when they don’t have to be. I’ve been at funerals that have been livelier than enrollment meetings.

How would I liven up an enrollment meeting?

1) Raffle off a $25 gift card at every enrollment meeting. People like free stuff and if they know they can win something by attending, they will. Of course, have the raffle at the end of the meeting, so it ends on a good note.

2) Presentations need to be clear and crisp. Less is more. Powerpoint presentations and slide handouts shouldn’t be overloaded with details. Illustrate the important points.

3) Add humor and cultural references. With apologies to my former managing attorney who wouldn’t know good marketing if it was standing behind her, adding humor and cultural references goes a long way. My articles aren’t widely read because of my rugged good looks or lack thereof. They are widely read because the humor and cultural references engage the reader in reading what should be a dry topic, i.e., the ins and outs of retirement plan sponsorship.

4) Break it down. Again, my writings are written in easy-to-understand English, not what I call ERISAese. The easier for plan participants to understand what you’re saying, the more likely they will remember what you’re saying.

5) Keep it short. Spend more than a half hour or hour, you will lose your audience. Again, less is more.

Being a plan sponsor is a tough job and the amount of paperwork that goes with it can be overwhelming. The paperwork includes plan documents, summary plan descriptions, amendments, valuations, trusts statements, and payroll.

The fact is that as a plan fiduciary, plan sponsors need to keep good records. It’s important to have correct records when you need to pay former plan participants out, but they need to protect themselves. I have seen too many plan sponsors get into trouble with plan compliance or audits by the Internal Revenue Service or Labor Department because they no longer have copies of the documents they once had.

While spaces for document file cabinets are usually at a minimum, there is a friend out there who can help you avoid losing necessary plan documents and that’s a scanner.

Saving all the necessary plan documents and valuation reports by scanning them as a pdf can help plan sponsors avoid losing documents and save on the need for space in filing cabinets. While plan sponsors should maintain original copies of all plan documents, they can scan the rest. A good scanner won’t set you back and plan sponsors probably have that option with their copier.

Plan sponsors should scan all their plan files as they come in and label them in an easy to understood manner. Creating specific directories on the network for specific plan years is also a great way to keep these things organized.

Something as simple as a scanner can help a plan sponsor exercise their duty as plan fiduciaries.