The Rosenbaum Law Firm P.C. Blog

According to an updated version of its 2021 whitepaper, Capitalize has found that forgotten accounts have grown by 20% in the last two years. As of May 2023, according to their study, there are an estimated 29.2 million forgotten or left-behind 401(k) accounts in the U.S., representing $1.65 trillion in assets.

The analysis showed that 3.8 million 401(k) accounts were left behind in 2021, with another 4.4 million forgotten in 2022. The average account balance of a forgotten 401(k) account increased to $56,616 from $55,400. In aggregate, the assets left behind by job changers now represent close to 25% of the total assets in 401(k) plans.

There is a cost to forgotten accounts. It increases a plan sponsor’s liability because many forgotten accounts belong to missing participants who no longer have access to their 401(k) plan account, which means no relief for the plan sponsor from ERISA 404(c) liability. It certainly leads to bad allocations, as well as increased fees that a missing participant could have saved with their own IRA program.

My latest article for JDSupra can be found here.

Employee Fiduciary, announced the launch of its Small Business 401(k) Tax Credit Calculator. This tool is specifically designed to help small businesses calculate their potential savings and estimate their 401(k) plan costs by leveraging new SECURE 2.0 tax credits.

SECURE 2.0 includes tax credits, including Startup Tax Credit, Employer Contribution Tax Credit, and Automatic Enrollment Tax Credit, which can significantly reduce the out-of-pocket costs for small businesses starting a 401(k) plan.

The calculator has been thoughtfully designed to provide a seamless and intuitive user experience. It is an effective tool for business owners to estimate their plan costs and potential savings. By answering just a few questions, the calculator takes into account not only Employee Fiduciary fees but also available tax credits. This empowers small business owners to make well-informed decisions when it comes to starting and maintaining a 401(k) plan.

Inflation is causing pain in the pocketbook and hardship distributions show that.

Fidelity found that 2.4 percent of 22 million people with retirement accounts in its system took hardship withdrawals in the final quarter of 2022, up half a percentage point from a year earlier. A similar review by Vanguard showedthat 2.8 percent of five million people with retirement accounts made a hardship withdrawal last year, up from 2.1 percent a year earlier.

In the first three months of 2023, Bank of America has found that the number of people taking hardship withdrawals jumped 33 percent from the same period a year earlier, with workers taking out an average of $5,100 each.

The Department of Labor (DOL) is contesting a lawsuit filed by a coalition of 25 state attorneys general that challenged its 2022 ESG regulation.

The lawsuit claims that the 2022 Rule “undermines key protections for retirement savings of 152 million workers—approximately two-thirds of the U.S. adult population and totaling $12 trillion in assets—in the name of promoting environmental, social, and governance (‘ESG’) factors in investing.”

The “ESG rule” became effective on Jan. 30, 2023. The DOL had moved for a change in venue for the lawsuit (from the federal court in Texas to Washington, DC), but that was denied.”

The Labor Department asserted that “the rule is the product of reasoned decision making, and is not arbitrary and capricious.

Cetera is acquiring The Retirement Planning Group (TRPG), a registered investment advisory (RIA) firm that has $1.4 billion in assets.

Leadwood, Kansas-based TRPG provides tax solutions and payroll and bookkeeping services to 1,825 high-net-worth individual investors, families, and retirees, and employs 40 professionals, including 14 advisors.

The deal signals a serious move into the RIA space from Cetera, the parent company of Cetera Financial Group, who just last month hired former Fidelity Investment senior executive Mike Durbin as its CEO.

Cetera previously made minority investments in NetVEST Financial, LLC, and Prosperity Advisors, LLC. Cetera earlier this year, announced that it had entered into an agreement to acquire the retail wealth business of Securian Financial Group.

Vermont is one of the latest states providing a state-run plan for private-sector employees whose employers are not covered under a workplace retirement plan. Gov. Phil Scott (R) has signed into law that called for the creation of VTSaves.

VTSaves will be an auto-IRA program, through which payroll deductions will be contributed to an IRA.

Contributions will be made to a Roth IRA; however, the state Treasurer has the authority to add an option for all participants to elect to contribute to a traditional IRA instead of a Roth.

Employers that don’t have a workplace retirement plan will be required to sign up. The requirement will be phased in by the following schedule, over time:

· Beginning July 1, 2025, all covered employers with 25 or more covered employees must offer the program to all covered employees.

· Beginning Jan. 1, 2026, all covered employers with 15-24 covered employees must offer the program to all covered employees.

· Beginning July 1, 2026, all covered employers with 5-14 covered employees must offer the program to all covered employees.

Employees of covered employers will be enrolled in a Roth IRA with automatic payroll deductions. The initial contribution rate will be 5% of an employee’s compensation, but the State Treasurer could require an annual increase of each active participant’s contribution rate, by not less than 1%, but not more than 8%, of salary or wages each year.

Employees will have the ability to adjust their contribution rates; rollover the funds in their accounts into other IRAs or other retirement accounts; and opt out of the auto enrollment.

Years ago, any volume submitter plan or non-standardized prototype plan would apply for its own determination letter from the Internal Revenue Service (IRS). Then one day, the IRS tried to cut back on their agent’s workload and said that line-by-line adopters of these types of plans didn’t need their own determination letter.

Just now, the IRS is telling us all that they are inundated by Voluntary Correction Program (VCP) applications. That is probably why they are expanding the Self-Correction Program. While the expansion of the SCP and the cut in VCP applications may affect my bottom line, there will be a cost for plan sponsors. The cost of that increased opportunities for self-correction will create larger penalties for those that don’t fix errors and let the IRS agent on an audit help fix things, with a larger hammer to penalize plan sponsors. I think the increase in Self Correction will also lead to programs from third-party administrators and ERISA attorneys like myself, to offer plan reviews, that might be a cost-effective tool to root out plan errors that can be corrected through SCP.

The idea for buying a nice home is that you would be friendly with neighbors. That really has not panned out. I have a neighbor next door who holds loud parties on Saturdays without giving me a head’s up. Parties with their karaoke player and amplifiers can end around 1 am. In addition, the neighbor didn’t let me know that he’s seeking a variance to build a side patio, 10 feet from my bathroom and bedroom. The side patio will probably be a party deck with his partygoers parting from there while I’m trying to sleep. My neighbor is different from me, he doesn’t understand how I will take things or he just doesn’t care.

In my business, I take every decision I make very seriously. I try to see how the other side may take things, so I take some time, instead of making rash decisions. That helped me recently with a dust-up with a long-term provider. While he wasn’t thinking about how I would take things, everything I did was to figure out how he would take things. As a result, we have an understanding and I’m proud of how I handled things.

When I started my own law practice in 2010, I did some small business networking and I realized there was a cottage industry of people who wanted to separate my money from my wallet. They would try to sell me services that I didn’t need, including search engine optimization, as well as literature tables at events that would garner me no business.

You have to use your assets wisely, or you could go broke before you get a client. If you’re an advisor, you could go broke attending every industry investment advisor event. These events are probably useful, but the costs may outweigh the benefits when you don’t have many clients.

When you’re starting out, you need to be a miser if you have limited means. Otherwise, you might be done before you get the business off the ground.