The Rosenbaum Law Firm P.C. Blog

As famously quoted in *This Is Spinal Tap*, there is a fine line between stupidity and cleverness. I can assure you that Michael McKean, who played David St. Hubbins in the movie and co-wrote it, was not involved in plan administration.

From my observations in drafting planning documents, that line certainly applies. The distinction between stupidity and cleverness is particularly evident in plan provisions that deviate from standard administration practices. Complex provisions related to eligibility, compensation, and vesting are more likely to result in errors than those that adhere to conventional norms. For instance, excluding certain forms of compensation from employer contributions or salary deferrals often leads to mistakes, as do unique eligibility requirements and entry dates. While there are many conventional choices for plan provisions, striving for uniqueness and creativity in plan document preparation is usually not beneficial.

As I always say: keep it simple, stupid. Unusual plan parameters tend to increase the likelihood of errors, and correcting those errors can be costly. Therefore, creativity is not a desirable trait when it comes to plan provisions.

In the 401(k) industry, people get honored from time to time. Heck, I’ve even been named to 401k Wire’s Top 100 people in the 401(k) industry a couple of times. At no point, have I ever seen people undeserving get an honor. The third-party administrator who tried to squeeze $80,000 from one of my plans that he wasn’t entitled to, isn’t being honored by anyone.

The Managing Attorney at that Fakakta Law Firm I was at would get some award as a businessperson of the year, but at least she made money, and the firm was a well-known advertiser of the publication that honored her. So I get that.

Where I live, in Oceanside, we have a few civic organizations and it seems it’s always the same 7-10 people involved in each. Oceanside Community Service, Kiwanis, Oceanside Unified, the Oceanside Fire Department are just the organizations that are one degree of separation from these so-called community leaders, and again, it’s the same people.

So these organizations will have fundraisers and they always honor the same people and these are people who have done nothing for the community. The Oceanside school district board members have done terrible things for the community. The Oceanside school board has more members with children on school district payroll, than children in Oceanside schools. This is a problem as the prestige and reputation of Oceanside schools have plummeted under the Superintendent that they reward with a $400,000 salary and multiple extensions.

So when one of these civic groups is honoring one of these school board members for a community service award, I have to ask, was Hurricane Sandy unavailable for the award? I will attest that Hurricane Sandy has done a better job for Oceanside than this Putzy school board member.

State-run retirement programs, including automatic individual retirement accounts (IRAs), are expanding access to retirement savings, with total assets nearing $2 billion. However, a new study from the Georgetown University Center for Retirement Initiatives (CRI) highlights that significant access gaps remain, as 47% of U.S. private sector workers—around 59 million individuals—lack access to employer-sponsored retirement savings plans.

The study reveals that access to retirement plans varies by employer size, with smaller firms being the least likely to offer coverage. Nationally, the Georgetown CRI estimates that 63% of private sector workers at small firms—those with fewer than 50 employees—do not have access to workplace retirement savings, compared to only 34% at larger firms. Furthermore, an additional 23.4 million gig economy workers also lack access to employer-sponsored retirement plans.

The Georgetown CRI argues that state-facilitated auto-IRA programs can help bridge these gaps by requiring private employers to provide access to state programs for employees who would otherwise have no workplace-linked retirement savings options. Previous research has indicated that state retirement program mandates can encourage firms in those states to establish their own retirement savings plans.

Currently, state-facilitated programs have been adopted in 20 states and potentially could provide coverage for approximately 20.6 million workers in those states who currently lack access.

Among U.S. states, Florida has the highest percentage of private sector workers—59%, or about 4.97 million employees—who lack access to employer-sponsored retirement plans. Additionally, 2.33 million gig workers in Florida also face this lack of access, and 73% of small business employees in the state do not have workplace retirement options.

If you are a large 401(k) plan considering offering in-house funds, be prepared for potential lawsuits.

Lockheed Martin Corporation and its subsidiary investment management company are facing legal action from current and former participants in their 401(k) plans. They are accused of violating fiduciary duties of prudence and loyalty by utilizing an in-house service provider and affiliated target-date funds. The aerospace and defense company is alleged to have taken a “do-it-yourself” (DIY) approach to managing their 401(k) investments, creating “home-grown, ineffective private investment funds,” and charging “excessive and unreasonable fees” to plan assets.

The lawsuit, Fezer et al v. Lockheed Martin Corporation et al, was filed in the U.S. District Court of Maryland and involves three of Lockheed’s 401(k) plans: the salaried plan, the bargaining plan, and the capital plan.

The plaintiffs, represented by by Zuckerman Spaeder, claim that Lockheed violated its fiduciary duties to over 140,000 beneficiaries by selecting and maintaining Lockheed Martin Investment Management Co. (LMIMCo.) as the manager of the 401(k) plans. They also allege that Lockheed offered LMIMCo.’s own target-date funds (TDFs), which were deemed “chronically underperforming” and high-cost, as investment options within the plans. Last year, LMIMCo. began offering a private equity co-investment sleeve within these TDFs. The most aggressive TDFs in Lockheed’s lineup have approximately 7% invested in a private equity fund. The lawsuit states that Lockheed’s choice to utilize its in-house TDFs, which carried “high fees” and demonstrated “poorer performance” compared to those offered by independent investment managers, was “unusual.” Plaintiffs noted that the in-house TDFs were two to five times more expensive than higher-performing TDFs offered by Vanguard. Lockheed designated these in-house TDFs as the only available investment options in the 401(k) plans and made them the default choice. The company also added additional in-house TDFs between March 2019 and this year for younger employees with longer retirement horizons.

Moreover, the lawsuit alleges that Lockheed misled participants in marketing the in-house TDFs, presenting them as the sole investment option necessary for retirement.

401GO has partnered with Mesirow to provide outsourced 3(38) fiduciary services to its clients. Mesirow’s 3(38) fiduciary services will be integrated into the 401GO retirement platform, making them available to approximately 1,400 financial adviser partners using the 401GO recordkeeping system.

The partnership will initially launch with Mesirow’s 3(38) services, with plans for future enhancements that will include custom default solutions and expanded fiduciary and reporting services, as stated by the companies. This partnership adds to the existing ways advisers can engage with the 401GO platform.

Advisers will still have the option to use 401GO as their 3(38) fiduciary through its sister company, GOInvest, create their own investment lineups from within 401GO’s open architecture platform, or collaborate with asset management firms.

401GO has been a sponsor of many of my events and I will say I’m impressed with how they are rolling things out to 401(k) plan sponsors and providers.

I remember when I was a kid and someone else’s parent bragged about how well their kid was doing. As a child and parent, I will attest that no one whose parents bragged they were a genius, was an actual genius. In addition, if you think things you have are bad, some people have it worse than you.

In 2024, Vanguard said the average balance for its 401(k) between the ages of 45 and 54 was $168,646. Fidelity’s figure for plans they do administrative work for was $192,200 for the 45-to-60 crowd. While Fidelity participants have more money than Vanguard participants, the numbers are awful. What is scarier is that the median 401(k) account balance for all 45-to-54-year-old participants in Vanguard’s retirement plans is just $60,763. This means that half of the plan participants in this age bracket have less than $60,763.

60 isn’t that far in retirement and if you just have an average balance, you have almost nothing for retirement.

I have been an ERISA attorney since 1998. More than half my career now has been in my practice for 15 years this April. For about a three-year run from 2007-2010, I had three different jobs, and the whole process of working for others and the job search process made it an easy choice to get off the employee carousel once and for all.

I have a good friend going through the whole job search and job offer process. Like someone with Post Traumatic Stress Order, this experience is bringing back everything that I tried to forget about the whole job search process. That includes the incessant multiple interviews, the salary range that the job offer doesn’t include but the ad did, and just the whole dashing of what something should be so joyous.

Around 2006, I was looking to leave the Third-Party Administration (TPA) firm where I was the head ERISA attorney. I could no longer work there because we had a minority owner who ran the place and he ran it poorly. So I interviewed at a larger firm in Westchester for a junior ERISA position. Went for several interviews, and they also enticed me with a flexible work schedule. The job offer came in at about $25,000 short of the top salary range of the position. They then promised me the bonus, which still came up short of that top range. When I asked about the flexible work schedule, the offer was withdrawn.

I don’t know how my friend will proceed in this job negotiation because several promises made on pay and benefits aren’t in the job offer. What is included is some arbitration provision that any employment lawyer would second guess. The point here is that the whole point to entice people to join your firm is to be transparent and honest. Yes, that extra $5,000 or $10,000 is coming out of your pocket, but the last thing you want is to leave a sour taste of someone you want to hire.

Merit Financial Advisors, a financial advisory firm based in Georgia, recently announced its acquisition of Sanctuary Wealth Management, LLC, and Fiduciary Services, LLC. This deal will enable Merit to establish a presence in Idaho and collectively grow its assets by $1.6 billion.

Sanctuary specializes in investment advisory and portfolio management, primarily serving private clients. Additionally, the firm offers a variety of retirement and investment solutions for corporate clients, including 401(k) plans. Fiduciary Services, a subsidiary of Sanctuary, focuses on employee stock ownership plans (ESOPs), providing both transactional and ongoing trustee services for their clients.

This acquisition marks Merit’s thirty-fourth since it received a minority investment in December 2020 from Wealth Partners Capital Group, along with a group of strategic investors led by HGGC’s Aspire Holdings platform. Last month, Merit also acquired Hershey Wealth Advisors, LLC, which increased its assets by $233 million and added a fifth office in Pennsylvania.

Last week, Rep. Haley Stevens (D-MI) introduced legislation aimed at waiving early withdrawal penalties for victims of retirement account fraud.

The proposed bill, titled the “No Penalties for Victims of Fraud Act,” seeks to alleviate the financial strain on individuals affected by fraud related to their 401(k) or retirement plans. Under this legislation, the 10% early withdrawal penalty typically imposed on individuals who take money out of their retirement accounts before the age of 59½ would be eliminated for verified victims of fraud.

These individuals must provide documentation of their fraud losses through law enforcement or court verification to qualify for the penalty waiver. While victims would not face penalties for early withdrawals, they would still be required to repay the amount they take out.

This legislation comes in response to a growing number of cyber-attacks targeting Americans’ long-term savings. The bill has been referred to the House Ways and Means Committee for consideration.

The Department of Labor (DOL) has issued a model notice for applicants to the Voluntary Fiduciary Correction Program (VFCP).

This notice is essential for informing plan participants that the plan has applied to utilize this important correction program. It is crucial to understand that this model notice is exclusively for applicants. It is not intended for use by those who are engaged in self-correction to rectify errors.

The issuance of this model notice follows the Employee Benefits Security Administration’s (EBSA) final rule released in January, which introduced significant changes to the VFCP that were originally proposed in November 2022.

Through the VFCP, fiduciaries can report specific administrative errors to the DOL and receive a no-action letter. These errors include prohibited purchases and sales, improper loans, and late contributions. The final rule highlights two critical new self-correction features. The first, articulated in section 7.1(b), covers failures to timely transmit participant contributions and participant loan repayments to pension plans. The second, detailed in section 7.3(c), addresses specific participant loan failures self-corrected under the IRS’s Employee Plans Compliance Resolution System (EPCRS).

Moreover, the updates to the VFCP and the amendments to Prohibited Transaction Exemption (PTE) 2002-51 are now in effect as of March 17, 2025.

This model notice firmly informs plan participants that the plan sponsor is actively participating in the DOL’s VFCP. It clearly outlines that the program is voluntary and is designed to empower plan administrators to correct potential breaches of Title I of the Employee Retirement Income Security Act (ERISA).