The Rosenbaum Law Firm P.C. Blog

I have handled more audits in the past six months, than in the past 5 years. Whether it’s the Internal Revenue Service or the Department of Labor, I’ve had many cases. Most are of the garden variety, random audits.

Many times, the audits are a result of a participant complaint to the Department of Labor or a Form 5500 error. Regardless of the reason, you need to be prepared. Work with your plan providers to get the information requested and root out any issues that you find, because I hate surprises, on an audit.

I handle my investments. I work with financial advisors around the country, they are the best referral sources for clients. If I ever made enough money where I need a financial advisor, I’ll likely consider someone I. have worked with and trust. So I’m not likely to respond to a cold email.

Recently, I got an email from an advisor hundreds of miles away, wanting me to consider hiring him. The email was pretty awful, he emailed: “ I provide investment management and financial planning services to individuals and families. Many of my clients have similar backgrounds to yours and I wanted to ask if you have any interest in talking.” What background? As an attorney, as a malcontent former TPA employee? The email is too broad and so cold, I can’t imagine it ever working. What do I think works? Networking, providing content to fellow providers. Anything better something that will be deleted in 3 seconds.

It looked great on paper, Pooled Employer Plans (PEPs) needed an audit only if they hit 1,000 participants or if they had an adopting employer with 100 or more participants. The Internal Revenue Service and Department of Labor clarified that PEPs with 100 participants or more are subject to audit, rather than the 1,000-participant threshold that we thought was the interpretation in the SECURE Act., which first made PEPs a retirement plan option. Instead, regulators kept the audit rule of having 100 or more participants the same for PEPs as they do for single-employer retirement plans.

What does that mean? It means PEPs with a small amount of participants that counted on no audit, may have to shutter their doors because a $10,000 to $20,000 audit can’t work for them. Will see in 2024, where it goes.

I will reiterate that almost all small and medium-sized 401(k) plans are immune from 401(k) litigation by current or former participants because ERISA attorneys aren’t likely to make money. The problem is: what is small? For me, small is something less than $25 million, and medium is less than $100 million.

According to fiduciary insurance data cited by the law firm Robinson Bradshaw, 40% of 401(k) excessive fee suits filed in 2022 were related to plans with less than $1 billion in assets, and 20% were related to plans with less than $500 million in assets. From where I come from, these are big plans.

I will always say that with my clients, I fear a governmental audit far more than a 401(k) lawsuit.

My daughter works at the local pizzeria. I can’t imagine they would offer a retirement plan until New York requires them to do so when the state IRA program goes into effect.

Again, I’m a big fan of the state mandate, it increases retirement plan coverage and a recent survey by Gusto (using data from the Colorado and Oregon state programs) shows that the lower-paid employees, would benefit.

Low-income workers are benefiting the most from these mandates, as rates of 401(k) enrollment have nearly doubled across low-income workers subject to the mandate. For Colorado workers making less than $15,000 per year, the share enrolled in a 401(k) plan rose to 16.4% from 8.7% between July 2022 and July 2023, and among workers making between $15,000 and $25,000 per year, the share rose to 18.7% from 9.8% over the same time period.

The reason I like state-mandated IRA programs for employers is because it increases retirement plan coverage and it nudges employers to offer plans of their own since they distrust the government. A recent study by Gusto shows that, concerning the mandated programs in Colorado and Oregon.

In Colorado, lawmakers enacted a requirement that companies with at least five employees participate in a public or private retirement plan starting no later than June 30, 2023. According to Gusto’s data, from one year prior to that date through August 2023, the share of companies with five or more employees offering a 401(k) plan increased to 38%, up from 25.3%.

In Oregon, they have a mandate that requires firms with from one through four employees to participate in an auto-IRA program starting after January 2023. Firms in Oregon with at least five employees were already subject to such a mandate. The share of firms with from one through four employees offering a 401(k) plan rose to 11% in August from 7% in January.

My latest article for JDSupra.com can be found here.

My latest article for JDSupra.com can be found here.

My latest article for JDSupra.com can be found here.

AFS 401(k) Retirement Services, LLC (AFS 401(k) Retirement Services) and AFS Financial Group, LLC has been acquired by HUB International.

AFS 401(k) supports mid- and large-sized organizations in managing employer-sponsored retirement plans and financial wellness programs, including fiduciary oversight, plan design, and employee advice coaching services. AFS Financial provides full-scope financial planning and investment management services to their client relationships, often managing family relationships that span several generations.