The Rosenbaum Law Firm P.C. Blog

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

Inflation is affecting retirement plan limits again.

Starting in 2024, employees can contribute up to $23,000 into their 401(k), 403(b), most 457 plans or the Thrift Savings Plan for federal employees, up from $22,500 in 2023/

The catch-up contribution limit for employees ages 50 and older who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will remain at $7,500.

The limit on total employer-plus-employee contributions to defined contribution plans will increase to $69,000 in 2024, up from $66,000 in 2023.

The IRS also announced defined benefit plan limits for 2024. Effective Jan. 1, the maximum annual benefit that may be provided through a defined benefit plan is $275,000, up from $265,000.

Meanwhile, the IRS also raised the limit on annual contributions to an IRA to $7,000, up from $6,500 in 2023.

The IRA catch-up contribution limit for individuals ages 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000, the IRS said.

The Highly Compensated Employee threshold has increased to $155,000 and the Key Employee Definition is now at $220,000, both increases of $5,000.

Registered investment advisor (RIA) Creative Planning announced the purchase of Mesirow’s corporate retirement advisory services team.

Mesirow services over 350 retirement plans, representing approximately $13 billion in assets under advisement and management.

As of July 1, Creative Planning’s assets under management (AUM) are over $245 billion.

The Department of Labor proposed a new fiduciary rule.

The proposed rule would end the traditional five-part test for determining if an adviser is acting in a fiduciary capacity and replace it with a three-part test in which satisfying any one of the three conditions would make the adviser a fiduciary.

The first two criteria in the proposal say that if the adviser either invests money with discretionary authority or claims to be acting in a fiduciary capacity, the adviser is a fiduciary.

The third criterion is a bit more complicated: If an adviser renders paid advice “to investors on a regular basis as part of their business and the recommendation is provided under circumstances indicating that the recommendation is based on the particular needs or individual circumstances of the retirement investor and may be relied upon by the retirement investor as a basis for investment decisions that are in the retirement investor’s best interest,” that adviser is a fiduciary.

This part re-applies the “regular basis” requirement of the traditional five-part test to an adviser’s relationship with the public, or individual clients in aggregate, rather than applying it to the investors as individuals and their relationship with the adviser. This allows the DOL to cover one-time recommendations, such as rollovers into an IRA, annuity sales or investment menu design for retirement plans as fiduciary acts.

With an election in 2024, and probable litigation, time will tell if the rule ever becomes final.

Despite my concerns about allowing crypto options in 401(k) plans, that issue will be back for us. As Bitcoin is at $37,000 and rising, there is expected approval of Bitcoin Exchange Traded Funds.

While the Department of labor has warned fiduciaries about these investments and allowing participants to invest in them, expect more providers to push it, as well as plan sponsors being interested in them.

A friend of mine advised me of the recent death of the owner of a third-party administration (TPA) firm, that I actually introduced the friend to.

I remember when that TPA owner first called me, it was a few months after I started my own practice. For a couple of years, the relationship was very fruitful, in terms of plan document work and monthly retainers. He was one of those people, who promised to make me rich and failed. We were going to make a mint in the multiple employer plan business, but he probably had ADHD and we didn’t, once the Department of Labor came out with their advisory opinion on Open MEPs in 2012. I noticed some issues when long-time employees started to leave and he would say disparaging things, including the female actuary he bought the business from, and probably stiffed. Then he stiffed me on $40,000 in plan documents. Then he started changing the name of his TPA with new names and entities to avoid paying off his creditors, including me after I got a default judgment in a state court.

I don’t get joy from his death and never wished bad on him after what he did. He was a narcissist, he was a cheat, and he was a liar. I am none of those things and I know, that I never would have treated him the way he treated me, and his former employees. I have no anger towards him, even if he had promised me to pay what he owed me after Hurricane Sandy flooded my house. He became such a non-factor to me, that I had forgotten about him until I found out he died.

Before I officially started my own practice as my sole revenue generator in 2010, I started the law firm about a decade earlier because I probably knew I would be on my own.

The first idea for The Rosenbaum Law Firm was a flop. Charging $100 for wills and $150 for income tax returns, meant working a lot for little money, and I could never have made it up in volume. People don’t hire law firms as they shop at Wal-Mart. Professional services aren’t bought and sold on price.

Yet, over the past 25 years, I have see plan providers feel that they can make do, by charging next to nothing for their services, whether it’s advisors or TPAs. Whatever discounting you give in pricing, you are not likely to make it up in volume. You need to make money and offering your services for next to nothing might benefit the client, but won’t stop you from going out of business.

Fee disclosure regulations and a whole bunch of excess fee settlements in litigation have curbed excessive fees. So ERISA litigators, especially on the low end, are trying to. find angles for litigation.

The Blackrock Target Date Fund cases were abysmal and plenty of litigators lost their shirts in fronting these losing cases. Now, we have cases regarding forfeitures and using them to reduce employer contributions. Unless these plans violate the written provisions of their plan documents, I think they have nothing. Time will tell and time will what other cases they will conjure up.

The small business part of the 401(k) business is a bit tough, a recent survey shows that.

A survey from Capital Group found that main reasons for small businesses not creating retirement plans were costs, complexity, and concerns about the size and stability of their business.

305 employers were part of the survey, 105 offered a retirement plan and 200 did not. About 75% of the businesses in the survey that lacked a plan said they were interested in creating one, but only 13% said it would happen in the next six months.

The reasons employers gave for not offering a plan were about complexity and expense. Thirty-nine percent said their business was not large or stable enough, 35% cited limited administrative resources, 32% said they didn’t know where to start, and 32% said plan creation is too expensive for them. For smaller companies, I think Pooled Employer Plans and educating sponsors about them, can go a long way in breaking down the barriers.

I got a phone call from a broker who wanted to give me a free 401(k) analysis. I’m sure the call was from Form 5500 where I’m listed as a plan sponsor. The broker had no idea who I was or what I did for a living, but it doesn’t say I’m an ERISA attorney on Form 5500. I don’t know what the batting average is on these phone calls, but it’s probably really low.

In my mind, writing content that engages plan sponsors and plan providers is the way to grow business. There have been so many people over the years who tried to sell me their services on search engine optimization or some other service that probably would net me far fewer clients than what my articles have drawn. To me, the content is better than any other form of advertising, it’s like a business card that truly engages the audience I need: plan sponsors and providers that will refer plan sponsors. To me, drafting articles is a lot easier than cold calling and dealing with a lot of hangups and no answers.