The Rosenbaum Law Firm P.C. Blog

With a few exceptions, SECURE 2.0 requires that 401(k) and 403(b) plans established on or after December 29, 2022 begin to automatically enroll participants upon becoming eligible for such plan by the first plan year beginning after December 31, 2024 (“Effective Date”). For a plan with a calendar year plan year, this means that automatic enrollment must be effective by January 1, 2025.

I’m all for automatic enrollment, and getting more retirement plan coverage for employees. The problem is that I believe many plan sponsors and plan providers aren’t ready and we are less than 6 months ahead of the deadline. As with any change, some providers will do better than others. There are going to be many hiccups along the way, guaranteed, on the plan sponsor and plan provider sides.

As a kid, I wanted to be a constitutional lawyer. Taking Constitutional Law changed all that. I realized that for the most part, what is constitutional is what 5 Justices say is constitutional. It’s mostly, a play on words, and what your interpretation of the Constitution is.

The recent Supreme Court decision in Loper Bright Enterprises v. Raimondo has overturned the Chevron case, which served as a linchpin of administrative law over the past 40 years.

The Chevron doctrine required courts to give a lot of leeway to an agency’s construction of ambiguous statutes, even as to the scope of those agencies’ authorities, so long as the agency’s construction of the ambiguous statute was reasonable and thus a “permissible” one.

Loper Bright eliminates agencies of this presumptive deference, the power of interpreting these ambiguities will be with the judiciary. This will increase new litigation over interpretations of statutory language on the Federal level.

I believe Congress and the agencies will need to be more careful in the drafting of laws and regulations, to limit the chances of ambiguities and court challenges.

I finally sat down and watched the show everyone was talking about, The Bear on Hulu. Thanks to the fact that each season was about 10 episodes, I finished it in a week. As you may not know, The Bear is about a chef trying to take over his brother’s sandwich place and turn it into a Michelin-rated restaurant. The restaurant business is prone to failure, I think they say that 98 percent fail. They also run on thin margins. While plan providers don’t have such a rate of failure, they do run on thin margins.

Like Carm was doing wrong in The Bear, too many plan providers go bust over costs. Carm wanted a new menu every night, some plan providers want to have fancy offices to impress clients and potential employees. I could have gone broke as a solo ERISA attorney if I’d bought every sponsorship or service that people were selling. It’s a slow grind building a business, but if you have the dedication and time, you will succeed.

SageView Advisory Group is collaborating with Transamerica to launch Integrity Pooled Solutions, which will offer both a 401(k) Retirement Plan Exchange and a Choice Pooled Employer Plan(PEP).

SageView will serve as the 3(38) investment manager and financial advisor for plans to join the Exchange or the PEP, while Transamerica Retirement Solutions will serve as the recordkeeper. Transamerica Fiduciary Services will be the Pooled Plan Provider (PPP), and TAG Resources will be the 3(16) plan administrator.

The Retirement Plan Exchange is for plans with under 100 employees who want to offer a cost-effective 401(k) plan with leading service providers while reducing costs, complexity, and fiduciary liability. Meanwhile, the Choice PEP is a solution for plans of any size looking to load off their fiduciary liability.

According to Vanguard, hardship distributions are up and that’s not a good sign.

The number of hardship withdrawals per 1,000 savers soared about 40% in 20023 and has doubled since 2021.

The main reason people were raiding their retirement accounts was to avoid losing their homes.

Withdrawals totaled 72 for every 1,000 savers in 2023 or an average of six per month. Fewer than 4% of savers took a hardship withdrawal during the year.

PNC Financial Services Group Inc. won their lawsuit brought by their employees, that accused them of paying excessive recordkeeping fees for their 401(k) plan.

Federal Judge Christy Criswell Wiegand in the Western District of Pennsylvania said that expert witness, Ty Minnich, hired by employees to discuss 401(k) recordkeeping fees did not use “reliable methodology” in concluding that the plan fees were unreasonable.

In 2014, the plan’s base recordkeeping fee was $46.55 per participant, and it declined to $32 per participant by January 2022, according to the case documents.

PNC had argued that Minnich’s testimony was not reliable because his opinion was based solely on his experience without using any reproduceable or traceable process. The judge agreed.

The PNC Inventive Savings plan contains about $8.1 billion in assets and 80,335 participants, according to the most recent Form 5500 filing.

Fisher Investments announced that they will be spinning out an independent 401(k) solutions division.

Fisher Investment 401(k) Solutions will become an independent firm named Fisher Retirement Solutions to be run by CEO Nathan Fisher, son of Fisher Investments founder and CEO Ken Fisher.

The retirement group had $4.75 billion in assets under management for over 1,600 retirement plans.

A 401(k) plan with multiple participating employers hosts several problems. The first is recognizing any control group or affiliated service group rules that treat such a plan for compliance purposes as a single plan or a multiple employer plan.

The second biggest problem I’ve seen of late is the failure of the plan sponsor to properly execute participation agreements for the employers that are participating in the plan. I’ve had to submit plans to the Internal Revenue Service Voluntary Compliance Programs to retroactively execute participation agreements for employers that had adopted the Plan years later.

It’s just another mistake that can be costly and easily avoided.

The Internal Revenue Service issued guidance in Notice 2024-55 on applying exceptions to the 10% excise tax under Internal Revenue Code (IRC) Section 72(t) for emergency personal expense distributions and domestic abuse victim distributions.

Internal Revenue Code (IRC) Section 72(t)(1) usually imposes an additional 10% early-withdrawal tax on a distribution from a qualified retirement plan, unless the distribution qualifies for one of the exceptions listed in IRC Section 72(t)(2).

IRC Section 72(t)(2) provides several exceptions to the 10% additional tax, including exceptions for distributions such as attainment of age 59 ½, disability, and early retirement or death.

SECURE 2.0 Act amended IRC Section 72(t) by adding exceptions to the 10% additional tax.

IRC Section 72(t)(2)(I) provides a new exception to the 10% additional tax for a distribution from a qualified plan to an individual for emergency personal expenses.

Emergency personal expense distributions are subject to three limitations:

1. not more than one distribution per calendar year may be treated as an emergency personal expense distribution by any individual;

2. an individual may treat a distribution as an emergency personal expense distribution in any calendar year up to a maximum of $1,000; and

3. rules that limit taking subsequent emergency personal expense distributions.

The amendment to IRC Section 72(t)(2) applies to emergency personal expense distributions made after Dec. 31, 2023. In determining whether a participant is eligible for an emergency personal expense distribution, an administrator of an applicable retirement plan may rely on a participant’s written certification that he or she is eligible for such a distribution, just like they can do with a hardship. If a participant treats the distribution as an emergency personal expense distribution in any calendar year, no amount of any subsequent distribution can be treated as an emergency personal expense distribution during the next three calendar years unless (1) the previous emergency personal expense distribution is fully repaid, or (2) the aggregate of the individual’s elective deferrals and employee contributions to the plan after the previous emergency personal expense distribution is at least equal to the amount of the previous emergency personal expense distribution that has not been repaid.

Under Notice 2024-55, an applicable eligible retirement plan must accept the repayment of an emergency personal expense distribution from an individual if the plan permits emergency personal expense distributions.

IRC Section 72(t)(2)(K) provides a new exception to the 10% additional tax for an eligible distribution to a domestic abuse victim. A domestic abuse victim distribution is includible in gross income but is not subject to the 10% additional tax. Under IRC Section 72(t)(2)(K)(ii), an individual may receive a distribution from an applicable eligible retirement plan of up to $10,000 (indexed for inflation) without the 10% additional tax being applied if the distribution qualifies as a domestic abuse victim distribution.

A “domestic abuse victim distribution” is defined as any distribution from an applicable eligible retirement plan to a domestic abuse victim if made during the 1 year beginning on any date on which the individual is a victim of domestic abuse by a spouse or domestic partner. The IRS states that an individual may, at any time during the 3 years beginning on the day after the date on which the distribution was received, repay any portion of a domestic abuse victim distribution (up to the entire amount of the domestic abuse victim distribution) to an applicable eligible retirement plan in which the individual is a beneficiary and to which a rollover can be made.

Any distribution that an employee or participant certifies as a domestic abuse victim distribution will be treated as meeting the distribution restriction requirements.

According to Vanguard, hardship distributions are up and that’s not a good sign.

The number of hardship withdrawals per 1,000 savers soared about 40% in 20023 and has doubled since 2021.

The main reason people were raiding their retirement accounts was to avoid losing their homes.

Withdrawals totaled 72 for every 1,000 savers in 2023 or an average of six per month. Fewer than 4% of savers took a hardship withdrawal during the year.