The Rosenbaum Law Firm P.C. Blog

As an ERISA attorney, I always have an open phone policy with plan sponsors, financial advisors, accountants, TPAs, and other attorneys from around the country on questions they may have about their plan or a client’s retirement plan. I never wanted to be that law firm attorney who was charging for every simple phone call and I just feel that this policy is a great way to build relationships in this tight-knit industry. That being said, some of the questions I get tend to be repetitive. So while I’m not trying to dissuade people from calling me, I just want to educate everyone on some issues that they may not understand. Like I always say, the reason I love the retirement plan industry is that you can learn something new every day. So here we go:

1. In a 401(k) plan, if you are under 59 ½, you can only get a distribution of your salary deferrals for hardship, death, disability, or retirement. There can be no in-service distribution for salary deferrals in the plan document for less than age 59 ½. If you did, it would be a disqualifying plan provision. You can have an in-service from the profit-sharing source at any stated age though.

2. A transaction between a plan and a disqualified person is a prohibited transaction. So the plan to buy a building and leasing it to the plan sponsor is a prohibited transaction. Even a financial advisor serving as a plan fiduciary can’t actively solicit rollovers from former plan participants.

3. Any participant-directed investment that requires a minimum investment or account balance is subject to testing under benefits, rights, and features to make sure that these benefits, rights, or features of a plan don’t discriminate against non-highly compensated employees. So investments with minimum investments of $25,000 can be discriminatory if enough non-highly compensated employees don’t have $25,000 in their plan account. One solution to that dilemma is if the investment can be traded in a brokerage account, offer self-directed brokerage accounts to all plan participants.

4. There is no statute of limitation for not filing a Form 5500. Using the Department of Labor’s Delinquent Filing Program is far less expensive than getting socked with a penalty from the Internal Revenue Service of $50,000.

5. Offering a new comparability profit-sharing allocation to a 401(k) plan should not be used in tandem with a safe harbor matching contribution formula because you can not use the matching contribution to offset any minimum contributions under a new comparability plan design (which a safe harbor profit sharing 3% contribution can).

6. When terminating 401(k) plans, be wary of the successor plan rule which is only applicable to 401(k) plans. Under the successor 401(k) plan rule, generally, an employer may not terminate a 401(k) plan and then start a new one for at least 12 months after the original plan is terminated.

7. Be careful of offering any incentives for people deferring or not deferring into a 401(k) plan. A 401(k) plan is not qualified unless it complies with the Contingent Benefit Rule. The Contingent Benefit Rule provides, in part, that no other benefit may be conditioned, directly or

indirectly, on an employee electing to make or not to make elective contributions under the 401(k) plan.

8. Many plan errors can be corrected without seeking submission to the IRS’ voluntary compliance programs. It all depends on the size of the error and the years involved.

The consolidation of the retirement plan business continues.

Voya Financial will acquire OneAmerica’s retirement plan business, in a move that will add $60 billion to Voya’s asset base.

OneAmerica’s retirement plan business comprises 401(k), 403(b), 457, and non-qualified plans and employee stock ownership plans (ESOPS).

The deal will increase Voya’s assets under administration (AUA) to $580 billion, with a total retirement plan and participant count reaching 60,000 and 7.9 million, respectively.

The transaction is expected to close on Jan. 1, 2025.

BAE Systems Inc. has won a class action lawsuit about misusing 401(k) plan forfeitures.

U.S. District Judge Anthony Trenga, of the U.S. District Court for the Eastern District of Virginia, granted BAE’s motion to dismiss the complaint by a current employee and plan participant seeking class-action status in Naylor v. BAE Systems. The BAE Systems Employees’ Retirement Plan had assets of $4.15 billion and 29,887 participants.

Trenga granted BAE’s motion to dismiss the case. The plaintiff claimed that BAE had used $9.7 million in forfeitures from 2016 to 2022 to reduce employer contributions. Trenga pointed to the plan document’s language on plan forfeitures, which allowed the use of forfeitures to reduce employer matching contributions. While BAE could have chosen to use the funds for administrative expenses, Trenga said they didn’t have to.

It’s an interesting ruling because it seemed based solely on plan language detailing how the forfeitures would be used, rather than the actions of the fiduciaries themselves.

Retirement plans with more than 100 participants with account balances require a CPA audit for their Form 5500. However, small plans with less than 100 participants may sometimes require an audit. This often happens when more than 5% of the Plan’s assets are invested in what is called non-qualified assets and a fidelity bond wasn’t purchased in the amount of the non-qualified assets.

For many years, a certain client held a partnership interest in a privately held real estate partnership that exceeded 5% of assets and was considered non-qualified according to the Department of Labor’s guidance. The previous third-party administration firm (TPA) never raised the issue of the 95% rule, even though it’s been around for years. Of course, this issue only pops up after they make the transition to a new TPA. The new TPA tells the client they need an audit for $10,000 and the audit should have been done for years.

If this client never changed TPAs, would they have ever noticed this error? Of course not, because the lousy TPAs out there have no checks and balances to ensure proper administration. The good TPAs have a system of checks and balances where work is reviewed, checked, and checked again.

I hate to shill, but I stress the need for an independent ERISA attorney who can discover these errors. A review of Form 5500 and a plan asset schedule would have easily uncovered this.

As stated before, my Retirement Plan Tune-Up is a legal review that looks at the plan documents, administration, testing, Form 5500, and the investment policy statement for a flat fee of $750.

Retirement plans with more than 100 participants with account balances require a CPA audit for their Form 5500. However, small plans with less than 100 participants may sometimes require an audit. This often happens when more than 5% of the Plan’s assets are invested in what is called non-qualified assets and a fidelity bond wasn’t purchased in the amount of the non-qualified assets.

For many years, a certain client held a partnership interest in a privately held real estate partnership that exceeded 5% of assets and was considered non-qualified according to the Department of Labor’s guidance. The previous third-party administration firm (TPA) never raised the issue of the 95% rule, even though it’s been around for years. Of course, this issue only pops up after they make the transition to a new TPA. The new TPA tells the client they need an audit for $10,000 and the audit should have been done for years.

If this client never changed TPAs, would they have ever noticed this error? Of course not, because the lousy TPAs out there have no checks and balances to ensure proper administration. The good TPAs have a system of checks and balances where work is reviewed, checked, and checked again.

I hate to shill, but I stress the need for an independent ERISA attorney who can discover these errors. A review of Form 5500 and a plan asset schedule would have easily uncovered this.

As stated before, my Retirement Plan Tune-Up is a legal review that looks at the plan documents, administration, testing, Form 5500, and the investment policy statement for a flat fee of $750.

TIAA has entered into a strategic partnership with global advisory firm Accenture to help transform TIAA’s retirement recordkeeping capabilities and operations.

The two companies will build enhanced experiences for plan participants with elevated digital capabilities across enrollment, money management features, and retirement education and advice planning solutions.

Starting in 2025, Accenture will support parts of TIAA’s recordkeeping operations, to make them more efficient through automation and enhanced processes over time. TIAA will still retain full responsibility for retirement plans and recordkeeping services, as well as hosting and safeguarding plan data on its platforms.

Speaking out of turn and having an opinion that will offend many, I think this is a positive change for TIAA because they needed help on the recordkeeping end.

Salesforce Inc. has settled a couple of outstanding 401(k) lawsuits alleging excessive retirement plan fees for $1.35 million.

Plaintiffs claimed in separate 2020 lawsuits that were consolidated into one case, that Salesforce’s retirement plan committee and executives overseeing violated their fiduciary duty by allowing relatively high fees for certain investments and retaining some poor-performing investments.

The class action settlement will go to more than 50,000 participants. Maybe my math is funny, but that looks to be $27 a participant. That doesn’t factor in how the attorneys get paid on this.

The Salesforce 401(k) Plan held $5.696 billion in retirement assets for 50,288 retirement plan participants, as of the latest Form 5500 filing.

The Department of Labor (DOL) updated current cybersecurity guidance for plans governed by the Employee Retirement Income Security Act, including health and welfare plans.

The new Compliance Assistance Release provides best practices in cybersecurity for plan sponsors, plan fiduciaries, recordkeepers, and plan participants.

The release updates DOL’s 2021 guidance and includes Tips for Hiring A Service Provider, Cybersecurity Best Practices, and Online Security Tips.

The Alera Group Inc., from Deerfield, Illinois, announced the purchase of Minnesota-based Advanced Capital Group Inc.

The deal brings $24 billion in a retirement plan and wealth assets, increasing Alera’s total retirement assets to $45 billion.

Advanced Capital Group provides consulting services for employer-sponsored retirement plans, endowments, and foundations.

When I was at that semi-prestigious law firm many moons ago, I developed this plan review called the Retirement Plan Tune-Up. I’d look at the plan document, plan design, costs, the Fiduciary process, basically anything that the plan sponsor can grow at me and I’d do it for $750.

When I started my law firm, I kept that program and even had brochures about it. I gave speeches at some great 401(k) Rekon events to tout them as well and I’ll be honest, maybe I’ve done about 10 of them in 15 years. The fact is that most plan sponsors tune out the need to take care of their plan and usually only take care of it when it needs to. Plan sponsors for the most part are reactive rather than pro-active. They don’t understand the threats to liability as a plan sponsor until it happens to them.

I’m not trying to mean or denigrate Plan sponsors. The fact is they’re busy running their business and they don’t understand the nature of fiduciary responsibility and the continued need for vigilance. Some plan sponsors, but most don’t and that is always going to be an uphill battle.