The Rosenbaum Law Firm P.C. Blog

Bundling sounds so convenient, doesn’t it? One login, one service team, one bill. It’s the Netflix of plan administration — until the compliance season arrives and the algorithm starts buffering.

Payroll companies love to sell the dream: “We can handle your 401(k) too!” It’s a compelling pitch for small employers who are tired of juggling vendors. The problem is, most payroll companies know as much about ERISA as I know about hair care. Once the integration gets messy — late deposits, missing census data, wrong deferral codes — the client realizes the hard way that convenience doesn’t equal competence.

I’ve seen it countless times: a plan sponsor calls, furious because the DOL is investigating late contributions, and the payroll provider blames “a system glitch.” Translation: “We didn’t know what we were doing.” The truth is, payroll integration is hard. Payroll systems weren’t built to interpret plan eligibility, match formulas, or vesting schedules. They were built to cut checks.

Providers like to joke that when payroll gets into the 401(k) business, it’s like a toddler getting into a toolbox — something’s getting broken. And when it does, guess who gets called to fix it? You — the independent TPA or plan consultant who knows how the machinery actually works.

Bundling will always have its place, but don’t confuse it with expertise. A good provider partnership doesn’t start with “we do it all.” It starts with “we do this part well.” Because in this industry, the best plans aren’t the ones with the fewest vendors — they’re the ones where every vendor knows their lane and stays in it.

Every plan provider has crossed paths with one — the advisor who talks a big fiduciary game but couldn’t tell you the difference between an ADP test and a CPA firm. He’s polished, personable, and occasionally sends you client leads, but when the 5500 deadline hits, he vanishes faster than a match in a down market.

He’s the one who promises, “I’ll handle all the client communication,” and then forwards your compliance emails to the HR intern with the subject line: “Can you deal with this?” He loves calling himself the “quarterback” of the plan, even though he’s never actually read the playbook — the plan document.

To be fair, not every advisor needs to be a technical ERISA savant. But the problem comes when they pretend to be. They assure clients that everything’s “taken care of” while the plan fails testing, the audit’s late, and the participant statements show Roth deferrals in pre-tax accounts. Then the plan sponsor calls you — the provider — wondering how the quarterback managed to throw the ball into the wrong end zone.

Here’s the truth: collaboration works only when everyone knows their role. The best advisors I’ve ever worked with admit what they don’t know. They lean on their TPAs, ERISA attorneys, and recordkeepers instead of bluffing through compliance questions like they’re on Jeopardy!

So, if you’re a provider stuck with a know-it-all advisor, document everything, stay professional, and keep your humor handy. Because at the end of the day, when the plan sponsor realizes who actually did the heavy lifting, it won’t be the “quarterback” getting the thank-you email — it’ll be you.

Every few months, I hear a plan sponsor brag, “Our provider said the 401(k) is free!” And every time, I have to resist the urge to reply, “So is lunch—if you’re on the menu.”

Let’s be clear: there’s no such thing as a free retirement plan. Somebody, somewhere, is footing the bill. If it’s not you, it’s your participants. The trick is figuring out where the money’s actually coming from—and whether it’s being disclosed in a way that would make a DOL auditor smile.

“Free” plans usually work like this: the recordkeeper builds their costs into fund expenses. So instead of writing a check, you’re just letting investment fees quietly chip away at employee returns. It’s like saying your accountant is free because their fee is buried in your tax refund. It sounds clever until you do the math.

I get it. Nobody likes writing checks, especially for something as unglamorous as plan administration. But let’s not confuse convenience with transparency. Paying a fair, visible fee for service isn’t a bad thing—it’s honest. And honesty is the cornerstone of fiduciary prudence.

Here’s the danger: the minute you call a plan “free,” you stop asking questions. You don’t compare costs, you don’t benchmark performance, and you don’t check what’s being deducted from participant accounts. Then, one day, you get a plaintiff’s attorney explaining the difference between “free” and “fiduciary breach.” Spoiler alert: that conversation isn’t free either.

So next time a provider pitches you a “no-cost” 401(k), smile politely and ask, “Who’s paying?” If they can’t answer that in one sentence, you’ve just learned the most expensive lesson in retirement plan management: free never is.

We’ve all heard it: “Don’t leave free money on the table.” It’s the classic pitch to get employees to participate in their 401(k) plans. Employers proudly offer a match, expecting that phrase alone will light a financial fire under their workforce. And yet, participation rates still stall. Apparently, even free money isn’t exciting enough anymore.

Maybe it’s not that employees don’t want the match. Maybe they just don’t believe it’s really free. After all, this is a world where “free” Wi-Fi comes with a privacy clause longer than War and Peace. People have been burned by too many “free trials” that cost them $19.99 a month for eternity. So when HR says, “We’ll match your contribution,” employees assume there’s a catch—like hidden fees, complicated vesting schedules, or that one coworker in accounting who insists the company is tracking them through their 401(k) app.

The truth is, the match only works if the plan design and communication work with it. If employees don’t understand the math—or worse, if they think the plan is a bureaucratic maze—they’ll tune out faster than a bad PowerPoint presentation. A 3% automatic deferral, auto-escalation, and plain-English education materials do more to boost participation than another flyer shouting “FREE MONEY!”

Here’s the irony: plan sponsors spend thousands on recordkeeping, audits, and investments, but many still rely on outdated enrollment meetings and PDFs from 2011. You can’t sell the value of the match with a presentation that looks like it came from dial-up Internet.

So, what’s the takeaway? If your employees aren’t contributing enough to get the full match, don’t just blame them—look in the mirror. Maybe the problem isn’t that the match isn’t generous enough. Maybe it’s that your messaging is as dry as an ERISA disclosure.

Free money may not be exciting, but clarity and engagement still are. Give your employees a story they can trust, and they’ll take the match every time.

Here’s the straight talk: smaller employers—those with under roughly $50 million in plan assets—are getting left behind when it comes to automatic enrollment in workplace retirement plans. And as long as that gap persists, too many workers will continue missing the retirement train altogether.

What the Numbers Show

Only about 24 percent of small plans had adopted auto-enrollment by the end of 2024, compared to 61 percent of large plans. Among those that did adopt it, 57 percent included auto-escalation, while 69 percent of large plans did the same. In small plans with voluntary enrollment, participation hovered around 52 percent; in those with auto-enrollment, it jumped to 82 percent.

Employees in small-business plans also tend to earn less—about $59,000 in median income compared to $89,000 in larger companies. Lower income correlates with lower savings rates, making automatic plan features all the more critical for leveling the playing field.

What It Means (and Why I Care)

If you’re a small-plan sponsor reading this, let’s call it like it is: failing to include an auto-enrollment feature isn’t just a missed opportunity—it’s a strategic misstep. Smaller companies already face limited HR resources, less formal plan education, and tighter budgets. Those factors make it harder to get employees to sign up voluntarily. Auto-enrollment fixes that.

From a fiduciary standpoint, this also raises questions. If you know that auto-enrollment dramatically increases participation—and the data proves it—then why wouldn’t you adopt it? At some point, ignoring that evidence might not just look negligent; it might be negligent.

Why This Matters to the 401(k) Industry

The lag in adoption among small businesses highlights a fundamental inequality in the 401(k) system. Large employers benefit from economies of scale, recordkeeping sophistication, and consultants who push best practices. Small employers often rely on bundled providers or local advisors who don’t emphasize behavioral plan design. That’s not an excuse—it’s a challenge.

The SECURE 2.0 Act and future legislation are already nudging auto-enrollment toward the default standard. The question isn’t if small employers will need to catch up—it’s when.

Lessons for Plan Sponsors

1. Adopt auto-enrollment now — before regulators or market competition force your hand.

2. Add auto-escalation — small increases over time make a huge difference in long-term balances.

3. Review your match structure — use incentives that reward continued participation.

4. Educate and communicate — even automatic features need explanation to build trust.

5. Measure outcomes — track participation and deferral rates so you can prove the design works.

Final Word

Auto-enrollment isn’t a luxury anymore—it’s table stakes. For small-plan sponsors, it’s the single most effective way to boost participation and improve outcomes without spending a dime more on education campaigns or incentives.

As I often tell clients: if you want to help your employees retire with dignity, stop making them opt in—make them opt out. That one design change can turn a struggling plan into a successful one.

Here’s what’s happening — and what every plan sponsor, consultant, and fiduciary should take to heart.

What the Facts Say

IBM’s 401(k) plan is under fire. A lawsuit alleges that the plan fiduciaries retained proprietary target-date funds (TDFs) and target-risk funds — the “Life Cycle Suite” — that underperformed comparable peer funds by as much as 20–30 percentage points over various vintages. About one-fifth of the plan’s $60 billion in assets — roughly $13.4 billion — were invested in those proprietary funds.

The complaint argues that the benchmarks used were “custom” benchmarks that compared the funds to themselves or to other in-house constructs rather than to true peer funds, making them misleading. Plaintiffs claim those imprudent selections cost participants around $1.9 billion in lost returns.

My Take

Folks — if you’ve been saying “we have a process” and checking boxes, this case demands your full attention. Because when participants lose not because of a market crash but because of the plan’s own construction, the ERISA war horn blows.

Let me say it bluntly: the plan sponsor lived by the mantra “default into the house brand,” while the house brand quietly underperformed every credible outside alternative. If I had been in that boardroom, right about the moment someone asked, “why do we use our own funds rather than the low-cost, high-performing peer alternatives?” I’d have raised my hand and asked, “where’s the fiduciary memo?”

Let’s break down the key red flags:

· Proprietary fund dominance: When a plan’s default lineup leans heavily on its own brand, you must ask if this benefits participants or simply keeps fees in-house.

· Custom benchmarks: Fancy benchmarks may make you look good on paper — until they don’t. A benchmark only works if it’s a fair reflection of the real market.

· Comparative underperformance: When your target-date fund is returning 57% while peers are earning 74% or 88%, you’ve got a serious fiduciary problem.

· Disclosure, monitoring, and governance: Failing to review alternatives or swap out underperformers is exactly what ERISA litigation thrives on.

Why This Matters for the 401(k) Industry

For plan sponsors and service providers, the IBM case isn’t just another lawsuit — it’s a mirror. Even the biggest, most sophisticated plans aren’t immune from fiduciary missteps. The lesson is clear: process isn’t paperwork. It’s active oversight, genuine benchmarking, and a willingness to challenge your own assumptions.

Too often, large plans build their own fund suites and assume that “internal equals efficient.” But when participants see years of lagging returns, efficiency turns into liability.

Lessons for Plan Sponsors

1. Revisit your default funds. Don’t assume “house” means best.

2. Scrutinize benchmarks. Make sure they reflect a fair comparison.

3. Document decisions. Meeting minutes and due diligence memos are your best defense.

4. Prioritize outcomes. Participants care about results, not branding.

5. Act when evidence demands it. Delaying fund changes only compounds risk.

Final Word

This isn’t just about IBM. It’s about every sponsor who believes their internal process is beyond question. Fiduciary complacency is the quiet killer of participant outcomes.

As I often tell clients: you can’t call yourself participant-focused if your plan lineup consistently underperforms. Fiduciary duty means putting participants first — even when that means questioning your own products.

There’s a metric that every plan provider loves to brag about: enrollment rates. Auto-enrollment has made it so easy that even the most indifferent employee ends up in the plan. Great, right? Well… not so fast.

High enrollment doesn’t mean you have an educated participant base. It doesn’t mean people are saving enough. And it certainly doesn’t mean they understand what they’re invested in. Auto-features create participation, but they don’t create engagement. That’s the dirty little secret no one likes to say out loud.

A participant who defaults at 3% and never touches a thing is not a success story—they’re a cautionary tale. They’re the person who wakes up at 62, opens their statement, and says, “Wait… this is it?” And guess who they blame? Not themselves. You. The plan provider. The sponsor. The “experts.”

Education is the antidote.

When participants understand how the plan works, they save more. They use catch-up. They adjust their investments. They appreciate employer contributions. They stop making emotional decisions when the market dips. Most importantly, they stop calling the HR office every fifteen minutes asking why their balance dropped $47 last week.

Education reduces noise, increases confidence, and builds trust. That’s what real providers deliver.

So yes, celebrate high enrollment—but don’t confuse automatic participation with meaningful engagement. Auto-enrollment is a head start. Education is the finish line.

And plan providers who get that are the ones who keep clients for the long run.

There’s a metric that every plan provider loves to brag about: enrollment rates. Auto-enrollment has made it so easy that even the most indifferent employee ends up in the plan. Great, right? Well… not so fast.

High enrollment doesn’t mean you have an educated participant base. It doesn’t mean people are saving enough. And it certainly doesn’t mean they understand what they’re invested in. Auto-features create participation, but they don’t create engagement. That’s the dirty little secret no one likes to say out loud.

A participant who defaults at 3% and never touches a thing is not a success story—they’re a cautionary tale. They’re the person who wakes up at 62, opens their statement, and says, “Wait… this is it?” And guess who they blame? Not themselves. You. The plan provider. The sponsor. The “experts.”

Education is the antidote.

When participants understand how the plan works, they save more. They use catch-up. They adjust their investments. They appreciate employer contributions. They stop making emotional decisions when the market dips. Most importantly, they stop calling the HR office every fifteen minutes asking why their balance dropped $47 last week.

Education reduces noise, increases confidence, and builds trust. That’s what real providers deliver.

So yes, celebrate high enrollment—but don’t confuse automatic participation with meaningful engagement. Auto-enrollment is a head start. Education is the finish line.

And plan providers who get that are the ones who keep clients for the long run.

If you’ve been around the 401(k) block as long as I have, you know that the most innocuous-looking sentence in a plan document—the stated matching formula—is often the one that blows up in a plan sponsor’s face. And not with a cute little pop, mind you. I’m talking full-scale compliance detonation. A weapon of mass distraction.

Yes, distraction. Because it distracts employers into thinking it’s “simple,” “predictable,” and—my personal favorite—“set it and forget it.” In reality, the stated match formula is the silent assassin of operational failures, the Trojan horse of corrective contributions, and the leading cause of TPA-sponsored aspirin purchases.

And I’ll say it plainly: I’m not a fan. Not even close.

Why Stated Match Formulas Cause More Harm Than Good

Let’s call it what it is: a trap.

A stated match formula obligates the employer to a precise percentage applied to a precise deferral rate on a precise timetable. That sounds great on paper—until payroll gets it wrong, or HR changes providers, or someone forgets the “true-up,” or a plan amendment occurs at the wrong moment, or the TPA, recordkeeper, and plan sponsor are all working off three different PDFs of the plan document.

One deviation—just one—and suddenly you’re grinding through:

· Voluntary corrections

· QNECs

· Restorations

· IRS “love letters”

· And the dreaded, “How did we miss this for three years?” committee meeting

It’s amazing how much damage one little formula can cause.

Why I Prefer the Discretionary Match

Now let’s look at the alternative: a discretionary match with a corresponding board or employer resolution announcing the match amount each year.

Clean. Elegant. Flexible. Almost poetic in its simplicity.

Here’s why it works:

· It doesn’t force the employer’s hand. No match this year? A smaller match? A bigger match? Completely up to the employer.

· It removes the operational guesswork. Payroll isn’t handcuffed to a fixed percentage; instead, the employer decides the match after seeing how the year plays out.

· It reflects real intent. Employers can adjust based on profits, staffing changes, and business cycles—rather than being bound by a formula drafted five HR directors ago.

· It dramatically reduces errors. You can’t violate a formula that doesn’t exist.

· It simplifies plan administration. Yearly resolutions make everything explicit, current, and documented.

And here’s the kicker: employees still get the match they expect—but without the operational landmines.

The Reality: Flexibility = Fewer Failures

Most plan sponsors don’t realize that their stated match formula is the #1 source of their matching errors. The formula often doesn’t reflect what the employer truly meant to provide—especially when the business environment changes.

A discretionary match lets reality drive decisions, not rigid document language.

It’s the difference between steering a ship with a flexible rudder… versus locking the wheel in place and hoping the wind never changes.

Guess which one auditors prefer?

The Rosenbaum Rule of Matching

If you want fewer corrections, fewer headaches, fewer IRS filings, fewer late-night emails from your payroll manager—ditch the stated match formula.

Use discretionary matches. Document with annual resolutions. Avoid needless fiduciary heartburn.

And if you absolutely insist on using a stated formula? Well… don’t say I didn’t warn you when it becomes your next weapon of mass distraction.

In the world of retirement plans, we’re comfortable with spreadsheets, deferral limits, matching formulas, and the usual fiduciary checklists. But let me tell you: we’re entering a territory where you may not be fully in control—and that territory is powered by artificial intelligence. The article from 401(k) Specialist titled “AI Tech to Spot Fiduciary Risks in Coming Years” is a timely wake-up.

1. What We’re Seeing

· Plan sponsors are increasingly leveraging AI for compliance, fraud detection, and operational monitoring.

· Simultaneously, the new capabilities raise fiduciary questions: Who is responsible when the algorithm errs? How transparent are the systems? What if the tech creates a false sense of security?

· The article warns that fiduciary exposure isn’t limited to traditional errors anymore—it now includes tech-driven blind spots.

2. Why Fiduciaries Can’t Just “Let the Machine Handle It”

Here’s friend-to-friend advice (in true Ary fashion): AI doesn’t relieve you of your fiduciary duty—it redistributes the risk.

· Liability still attaches: If your plan operations rely on AI for monitors, fraud detection, allocations, etc., but you don’t understand how the AI decision-process works or fail to oversee it, you’re still the fiduciary on the hook.

· Black-box concerns: If the system flags “anomaly” and you act (or fail to act) based on that, you need to ask: What rules is the AI using? How is it trained? What are false-positive/negative rates? A machine could miss an error or generate a bogus alert, and you’d still have to explain to the board why you ignored—or blindly followed—it.

· Vendor oversight is magnified: Your service providers may bring AI tools, but these do not excuse your oversight. Are they acting ministerially or discretionarily? Are you clear on the scope? If not, you’re exposed.

· Cyber/security risk escalated: AI features open new vectors: data-driven fraud, deep-fake impersonations, algorithm manipulation. A plan that hasn’t adapted its cybersecurity or vendor auditing processes will likely be the plan that ends up in the headlines.

3. What the Rosenbaum Fiduciary Checklist Looks Like (For AI Era)

Because yes, I have a list.

· Inventory all AI-enabled systems: Which parts of your plan operations use AI? Fraud detection? Participant communication? Investment monitoring? Know the “what” and “how.”

· Understand the logic & limitations: Get vendor documentation. Ask for audit trails. Are there human checks after algorithmic decisions? What is the “fail-safe”?

· Clarify roles and responsibilities: Who is the decision-maker when AI raises an alert? The vendor? The recordkeeper? You? Make sure your plan document, vendor agreement, and committee charter reflect this.

· Review cybersecurity and data governance: AI is only as good (and as safe) as the data and systems behind it. Review encryption, access controls, vendor controls, incident-response plans, and deep-fake risk protocols.

· Training and documentation: Your fiduciary committee needs to understand how AI fits in. Document decisions where you followed or rejected AI-generated outputs. Demonstrate oversight.

· Insurance and coverage review: Does your fiduciary liability insurance cover technology-enabled fraud or algorithmic failure? If not, revisit coverage.

· Plan design/operation check-up: Ensure that your reliance on technology isn’t replacing sound operational fundamentals. AI is not a substitute for clean plan design, solid vendor management, participant education, or good governance.

4. Final Word

Let me be blunt: if you think AI is just a “nice to have,” you’re one step behind. If you think, “Well, our vendor handles all that,” you might be dangerously complacent. In the AI era of fiduciary oversight, you remain the captain of the ship. The machine is a tool—but you still navigate.

So yes, embrace the smart tools. Use them to spot risks that humans might miss. But don’t outsource your fiduciary brain. Because when something goes sideways—and it will—the board isn’t asking the algorithm to explain itself. They’re asking you.

If you’d like, I can pull together an AI-readiness memo for your fiduciary committee (Ary style) that outlines the risks, the controls, and stops your plan from being a headline.