The Rosenbaum Law Firm P.C. Blog

United Airlines has filed a lawsuit over an alleged scheme with an advisory firm and a scheme to get loans through pilots’ self-directed brokerage window.

United Airlines, Inc., United Airlines Retirement Plans Administrative Committee, and the United Airlines Pilot Retirement Account Plan filed a lawsuit against Keep Safe Investments, LLC, J&K Connect, and Kristi Berge. The lawsuit claims that the defendants concocted and carried out a “scheme by and among Defendants to obtain control over Plan assets in violation of the governing Plan documents and by fraudulent means, and to improperly use those assets for personal gain.”

The scheme involved a self-directed brokerage account (SDBA) the plan included as an investment option. A participant using that window, had to acknowledge that (1) their advisor will only be permitted to withdraw assets from their account to pay advisory fees, and (2) any and all amounts deducted from the account as advisory fees must be for advisory services related to assets in the participant’s brokerage account.

It is alleged that Berge and/or Keep Safe entered into contracts with plan participants, for them to provide investment advice. The problem is that plan participants entered into agreements with J&K, under which the participants agreed to make a loan from their brokerage account to J&K, paying 10% interest annually, over 5 years, while identifying the loan as payment of management fees. The scheme was uncovered when Schwab, as recordkeeper, alerted United, as to excessive management fees being charged against these self-directed brokerage accounts.

When a friend or family member asks for advice upon leaving a job, I always tell them to rollover their account to an Individual Retirement Account. Of course, I’m not an advisor trying to push product.

I think any fiduciary rule should protect participants from unscrupulous providers, pushing high-commission products. It’s one of the dirtiest parts of the 401(k) plan business that needs to be addressed.

If you have a retirement plan with more than 100 participants with account balances, you probably have a plan audit (if you have more than 120 participants, you do). Like with any plan providers, there a lot of great auditors out there and some not so good.

So if you’re auditor brings up issues dealing with plan compliance, confirm those findings with plan providers and/or ERISA attorneys because auditors maybe great at accounting, they aren’t legal experts. I have an advisor-client (cheap plug here) who asks me to confirm what the auditors are saying on the compliance end and occasionally, they’re wrong and their answers could lead to compliance headaches especially where the Department of Labor and Internal Revenue Service are concerned.

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

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

One of the thankless parts of my job is dealing with plan sponsors with large issues and no sense of urgency in fixing them. The large issues, usually deal with a third-party administrator (TPA) that hasn’t done the work or won’t hand over the work, which kept the plan in compliance.

As a plan sponsor, you can’t dilly-dally with multiple 5500s outstanding and missing documents, dating to the 1990s. in the end, the problem, fault, and expense, will lie with you. The more time you waste and do nothing while the TPA doesn’t respond, means more potential liability and expense when the Internal Revenue Service and Department of Labor, target you.

I always believed that former employees were better off rolling out their 401(k) money into a rollover. I still do. When my wife changed jobs about a year ago, it was probably the first thing she did.

Years ago, I had money in my old law firm’s 401(k) plan. I met a broker who I was networking with, who sparked my interest in a rollover. His firm was selling a REIT for long-term stay hotels. I made the switch, unwisely. While the stock market tanked, my rollover IRA was parked at a REIT that wasn’t publicly traded and pretty much, inaccessible. It eventually fell under an SEC complaint against the brokerage firm. The broker I used, switched jobs and joined another broker-dealer. I hung up on him when he disparaged the investment that he previously sold me. I never heard from that guy, ever again.

While most advisors work in the best interest of plan participants, I support the best interest exemption, applying to rollovers. Shame on me for being sold a high-commission product, but more innocent participants should be protected.

Timing is everything and a new proposed fiduciary rule has bad timing. While I support changes to the current rule, a rule with about a year before the next Presidential election, means a rule that is proposed, but may not have much of a lifespan, if it’s ever enacted.

We have been through this before in 2016, and I would hate history repeating itself.

I understand why people in the industry would have issues with the proposed legislation, known as “Retirement Savings for Americans Act.”

If passed the law would create a retirement savings program by the Federal government. . Full- and part-time workers who lack access to an employer-sponsored retirement plan would be eligible for an account, and they would be automatically enrolled at 3% of their income. They could choose to increase or decrease their withholding, or opt out entirely at any time. Independent workers (would also be eligible). Low- and moderate-income workers would be eligible for a 1% automatic contribution (as long as they remain employed) and up to a 4% matching contribution via a refundable federal tax credit.

I understand why the industry would be threatened by it, but I think any plan that increases retirement plan coverage for employees is a good thing. People will see this as an unfair competition where the Federal government is competing against private business in the 401(k) space, but I just think that any program, like State IRA programs, will increase the sponsorship of private 401(k) plans.

Again, litigators are trying to create class action lawsuits against large plans. This time, I think they’re scraping the bottom of the barrel.

The newest wave of cases is dealing with forfeitures and larger companies using forfeiture to reduce employer contributions. Unless these forfeiture provisions are drafted poorly where forfeitures must be used to pay administrative expenses first, I just don’t think the cases will go anywhere.