The Rosenbaum Law Firm P.C. Blog

There have been 25 cases where plan sponsors have been sued over their right to use forfeitures to reduce employer contributions. 7 cases have had motions for summary judgments made by the plan sponsors. 2 cases have survived the motion and 5 cases have been thrown out. The latest winner is Honeywell. In New Jersey, Federal Judge Padin granted Honeywell’s motion and dismissed the plaintiff’s complaint without prejudice.

The plaintiffs in this case claimed that using forfeitures to reduce the plan sponsor’s contributions violated ERISA’s fiduciary duties. They argued that Honeywell always used forfeitures to reduce employer contributions and that its decision to do so constituted a breach of ERISA’s fiduciary duties of loyalty and prudence, as well as a breach of the “anti-inurement” provision in section 403(c)(1) of ERISA.

While Judge Padin said that the use of forfeitures to reduce contributions was a fiduciary decision, the Judge suggested that the plaintiff’s allegation that every time a plan administrator chooses to use forfeitures to reduce employer contributions it violates its fiduciary duties under ERISA is so broad as to be implausible. The plaintiff would have to show that such a decision was an actual breach.

People like to read, and so do I. They also like to read articles and find out information, especially if it can save them money. So they read about the opportunity where through a 401(k) plan, they could put away over $40,000 in an after-tax voluntary contribution. Of course, the plan has to offer that old thrift provision, but these articles fail to mention that voluntary contributions are all subject to the ACP test, like a matching contribution. Even worse, a safe harbor 401(k) doesn’t stop the ACP test.

So unless it’s an owner-only plan or the person wanting it is a Non-Highly Compensated Employee, the chances that it can work are slim to none—ever slimmer than that. So, for the financial journalists, please don’t give false hope to business owners with employees that they can save more when an ACP test is a huge impediment.

For the last two months, I had two phone call conversations with plan providers that I haven’t talked to, in some time. The reason I didn’t talk to either person for a long time, was because they were working for bosses who I had issues with. One boss terminated our document drafting relationship without notice (that required me to have my document drafting subscription and lose all my prior data) and the other, was a third-party administrator that tried to shake a plan I worked on for $80,000 in duplicitous fees.

Honestly, you can’t fault the employees of plan providers where the bosses are unreasonable. Expecting people to stand up for you and what’s right isn’t likely to happen when these people have paychecks signed by unreasonable bosses. Believe me, I have worked for quite a few of those people. That being said, the point here is that when working with plan providers, you should never burn your bridges. It’s a small industry and there may be times when you have to call on people, who have been burned by someone close to you.

In a further consolidation of the retirement plan business, Voya Financial, Inc. announced that it has completed its acquisition of the OneAmerica Financial, Inc. full-service retirement plan business.

Thanks to the September 2024 purchase, Voya now serves approximately 60,000 retirement plans supporting nearly 8 million participants, with $670 billion in assets.

Walgreens, one of the largest retail pharmacy and healthcare providers, announced the launch of the Walgreens Student Loan 401(k) Match Program. This new benefit, available beginning in January 2025, will allow their plan participants to qualify for company 401(k) match contributions as they pay down their student loans.

The Walgreens Student Loan 401(k) Match Program treats participant student loan payments like contributions to the Walgreens Retirement Savings Plan “401(k).” Walgreens matches eligible student loan payments up to 4% of eligible pay. Participants are generally eligible for company matching contributions after one year plus 1,000 hours of service.

For small and medium-sized businesses, I don’t see much demand for adding this benefit. Larger corporations like Walgreens, will certainly want to add this as some sort of incentive for their current and potential employees.

The Department of Labor’s Employee Benefits Security Administration (EBSA) launched the public Retirement Savings Lost and Found Database, an online tool designed to help former participants and beneficiaries find retirement plans that may still owe them benefits.

The database was created as part of the SECURE 2.0 Act of 2022. It allows individuals or their beneficiaries to search for lost or forgotten retirement accounts and receive guidance on how to claim their funds.

As long as the information provided is accurate, this is something that so many of us in the retirement plan space can get behind.

Small business plans that require no testing such as a SIMPLE IRA sound great on paper, but they create a nightmare when you want to save more for retirement as an employer.

The problem is that a SIMPLE plan has to be the exclusive plan for your business for the year. If you want to put more into a defined benefit plan or benefit from the higher contribution limits of a 401(k) plan, there are certain limitations for mid-year changes (even with recent law changes). You may have to wait for the year to end. The bigger problem is when plan providers set you up with a new plan and don’t ask if you have a SIMPLE or you just don’t volunteer that you do. There are a whole host of compliance issues when you set up a new plan in a year where you have an active SIMPLE. While competent plan providers will ask you if you have another plan, other providers may just be too interested in a sale to ask. Either way, SIMPLE plans aren’t that simple when you want to save more for retirement.

With a new administration in the White House, tax legislation will certainly be on the plate. As we know with the last tax bill, great tax deductions and subsidies could be on the chopping block to pay for tax cuts. We say that the cap on state and local taxation deductions at $10,000, was the stick to get tax cuts.

401(k) deferrals cost the Federal government about $185-200 billion in lost revenue. Critics claim this tax deferral is a boon to the wealthy. So expect a few in Congress who will want to eliminate this benefit or require all contributions to be made on a Roth, after-tax basis. Regardless, we need to be vigilant in preserving this benefit, which preserves us as plan providers in this industry.

Rep. Virginia Foxx (R-N.C.) asked for an investigation into the Department of Labor’s (DOL) apparent practice of sharing information obtained from its investigations with plaintiffs involved in ERISA-related litigation. These agreements are known as common interest agreements (CIA).

This CIA thing came up during litigation where information that a plaintiff got from the DOL was ruled not to be privileged and was forwarded to the defense since the DOL didn’t sue the defendants. Apparently, many ERISA litigators have heard of these CIA deals, but they haven’t procured information from them.

The job of the DOL is to investigate and prosecute in defense of participant rights. If they investigate plan fiduciaries, they have no obligation to remain silent and could provide that information to anyone they want.

As many of you know, a substantive part of my income is independent fiduciary work. Whether it’s an ERISA §3(16) administrator, trustee, or Pooled Plan Provider (PPP), my other business Austin 3(16) Fiduciary Limited, is almost as successful in income as the law practice.

There are times when Third Party Administration (TPA) firms ask me to serve as a PPP, and I raise the issue of whether they can do it independently. I’m turning down the business of getting basis point income in favor of doing what’s right by the TPA. Drafting a PPP agreement for them doesn’t net the income as being a PPP, but it’s what’s right for the client. If they’re already doing 3(16) work, being a PPP is a no-brainer. Sure, it’s taking food out of my mouth, but it’s done right by the client.