The Rosenbaum Law Firm P.C. Blog

I joke that you will hear many announcements about pooled employer plans starting, but very little on them amassing plan assets. So here is one Pooled Employer Plan (PEP) that has. Aon announced that its pooled employer plan, Aon PEP, has reached $2 billion in 401(k) assets under administration and commitments since its inception in 2021.

Over the past year, assets in the PEP for which Aon serves as the pooled plan provider have doubled, as it reached $1 billion in assets in October 2022. Aon PEP has more than 70 adopting employers and more than 50,000 employees.

The snowball effect is a term for a process that starts from something that is small and builds upon itself, becoming larger and also perhaps potentially dangerous or disastrous. The idea is that an avalanche can be started by a single, rolling snowball, hence the term.

When it comes to retirement plans, we have a snowball effect. The effect is usually when the plan sponsor has a plan problem and decides to either try to fix it on their own or lean on legal counsel with absolutely no training in ERISA.

I have seen too many plan sponsors pay tons of penalties and excise tax to correct problems that could have cost them a lot less if they were represented by ERISA counsel.

I remember being contacted a few years ago by a financial advisor whose client’s plan was disqualified by the Internal Revenue Service and was asked if I could possibly represent them in negotiating down any other Internal Revenue Service penalties. I told the advisor I should have been called a lot earlier because the transgression shouldn’t have led to the plan being disqualified if they had some decent ERISA counsel.

Too many plan sponsors think they can handle an audit or inquiry or investigation on their own and they’re wrong unless they are a third-party administrator or ERISA counsel.

In the past, I have been able to negotiate penalties down for failures to file Form 5500 on time when plan sponsors not represented by counsel have paid through the nose in penalties. Too often plan sponsors are so more interested in saving on legal fees, that they end up cutting their nose to spite their face by paying more in penalties.

ERISA counsel has the experience to handle the government and I have found a deference by IRS and DOL auditors in dealing with professionals who understand the ramifications of the situation, which often leads to a better resolution.

Using counsel who have no ERISA experience is a mistake as well, like hiring a dentist to do a colonoscopy. ERISA is a different animal than what most attorneys handle and I have found there is no room for lawyers who want to dabble in ERISA because it’s not something you can dabble in.

Once a plan sponsor gets that initial inquiry, they need to contact ERISA counsel and their TPA to draft an action plan on how to handle it because often the IRS and the DOL may use an audit to investigate a major complaint. Having a lack of experience in handling a governmental audit can make things so much worse.

I first started paying for my own car when I got my first job as an ERISA attorney, It was a brand new 1998 Toyota Camry. I was looking for car insurance and the best rate was through an insurance company that my father’s business partner used for the business.

I used the same car insurance company since then, and 6 different cars. They were great at paying claims, namely the two vehicles totaled during Hurricane Sandy. Over the past few years I used them, I saw my rates go up while my cars got older. I never got a call from the agent about the increase in rates or what I could do to lower them. So I shopped around and found insurance that cost me $150 less a month. That’s good money.

The point here is that when you have clients, you just can’t sit around and ignore the fees that they’re paying. I’m not saying you should lower your fees, I’m saying that you should always have a discussion with clients about fees and when assets can lower the percentage of assets that pay fees. You just can’t stand pat and do nothing, further incentivizing plan sponsors to look elsewhere.

In every relationship I’ve ever had that ended, the blame always rests on a lack of communication. People and clients like to know that they are appreciated and that their continued loyalty isn’t taken for granted. The best way to show they are not being taken advantage of is by not ignoring the fees they pay.

I always say that the reason I’ve never hired an employee is because I was an employee once too. I say that the problem with the employee-employer relationship is that no employee thinks they get paid too much and no employer thinks they pay their employees too little.

The worst time of the year for me was the annual review because I always ended up being unhappy with my raise. The problem really was only at one job I had because when it came time to get promoted, I never got the salary that I thought should come with that promotion. So every year, I felt I needed to chase that salary with a raise. One year, my employer said that if I wasn’t happy, I should leave and find another job. I packed up my stuff and was ready to walk off, but a fellow employee knocked some sense into me that I was married and had an infant son. A year and a half later, I was gone.

When you have great employees, one of the worst mistakes you can make is making them feel unappreciated. Another big mistake is making it clear to them that can go elsewhere. Maybe they didn’t think about going somewhere else, but telling them can provide the spark that gets them to leave. If you truly value your employees, don’t give them the idea that the grass may be greener on the other side.

Over the past 13 years as a solo ERISA practitioner, I always get asked if that’s all I do. It’s not some kind of insult, but a question on whether I also do financial advisory work and/or third-party administration work. The answer is no and I stick to what I do.

Over the years, I’ve seen plan providers get into trouble by offering advice that they are not experts in. Unless they have an ERISA attorney on staff, a TPA is not a lawyer and an ERISA lawyer is certainly no financial advisor. My wife and I always chuckle when non-attorneys give legal advice and I’m sure other providers would chuckle if I gave financial and/or plan administration advice.

You should stick to what you know. It will save you and your client, a giant headache.

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

The Internal Revenue Service finally released regulations for 401(k) plans for long-term, part-time employees (LTPTE).The provision will go into effect starting January 1, 2024.

It provides guidance on LTPTE rules that were established with the SECURE Act in 2019 and SECURE 2.0.

Under the SECURE Act, 401(k) plans can no longer have service conditions that prevent employees from making salary deferrals if they’ve worked for an employer for at least 500 hours for three consecutive years. SECURE 2.0 further amended the rule that starting in 2025, it will apply to employees who have worked 500 hours for an employer for just two, not three, consecutive years.

The new guidelines seek to better define LTPTEs, and eligibility conditions under the SECURE Act. The new rules only apply to LTPTEs who are “solely” in the plan because of the rules. Employees who are immediately eligible for a plan, for example, are not considered LTPTEs. All LTPTEs earn vesting for 500 hours of service in a 12-month period, instead of 1,000 hours, and that applies to all current and future employer contributions. Additionally, that more rapid rate of vesting will essentially apply forever, even if the LTPTE eventually earns 1,000 hours of service. Plans will still be able to apply job class exclusions to LTPTEs as long as they don’t impose an impermissible age or service requirement. Under the new rules, the 12-month period for LTPTE service begins on the hire date but can later shift to the plan year.

There is still big business with small plans.

Empower has reported it has achieved sales of more than $10 billion in new retirement plan sales, amounting to some 3,300 in new plans and covering the retirement needs of approximately 250,000 new participants for 2023.

Empower has total assets under administration to more than $1.4 trillion on behalf of 18.3 million individuals as of September 30, 2023.

The best thing I did in my professional life was starting my own practice. The only thing I maybe miss from working at a business is the camaraderie with certain staff. Aside from the backstabbing co-workers (every place had that one person), the thing I miss the least is the Holiday Party.

Perhaps I’m a malcontent like Larry David, but when you don’t get a holiday bonus, you’d rather have the money for the Holiday Party invite, than the actual invite. It always felt like work, without being paid, especially the places where they wouldn’t pay for your spouse or significant other to attend, so you’re trapped for about 3 hours with people that you are trapped with, for 40-45 hours during the week.

When my father’s company had a holiday party, it was fun since it usually corresponded with the end of my Fall school schedule and I didn’t work there. I do remember one year, probably 1990-1991 when things were rough, and no holiday bonuses were not handed out. That caused an employee boycott of the party. I didn’t empathize at the time because I didn’t work there.

If you’re a boss and having a holiday party, why do you do it? If you’re handing out holiday bonuses, I get it. If you’re not, isn’t it better to give the employee the $100-125 in cash, than a holiday invite? When my father’s partner and certain former bosses threw a party, I knew they did it for themselves and not for the employees. Just remember why you throw it and how the employees may take to it or not.

Most errors I have seen through plan audits are typical. It’s usually late deferrals or a screw-up on the definition of compensation. Yet there can be some true horror shows out there, I’m talking about catastrophic errors that can lead to disqualification.

The catastrophic errors that will lead to a plan disqualification often result from the failure (usually intentional) of plan sponsors to not include employees for purposes of covering them under a plan. Could be a 401(k) plan with employer contributions, but usually a defined benefit plan. Sometimes the intent was caused by an actuary, other it can be for the advisor or the accountant. The controlled group rules are very basic, so I would be surprised if the lack of coverage wasn’t intentional. There are a lot of great providers out there, but a lot of jokers, that put plan sponsors and their retirement savings at risk.