Newsletters

The Best Laid Plans of Mice and Men

David I Gensler, MSPA, MAAA, EA

Some of us do a really good job of planning for the future. Many of us do not.  In trying to gauge how much we need to save for retirement, we assume that our life in retirement will be pretty similar to the life we led before we retired. We forget that our paycheck serves as our ultimate “goalie.” If the refrigerator breaks and we need to buy a new one or if we get into a car accident and need to go out of pocket on our deductible, we always have the money we earn from working to back us up. Of course, we don’t really plan for these painful financial events; they happen and we swallow hard and just deal with them.

Read More

Who Completed The Provisions In Your Trust Document? And Was It For Your Benefit?

By: David I Gensler, MSPA, MAAA, EA

Would you ever have a legal document completed by a complete stranger? Someone you never met or talked to, someone who knew little or nothing about what you wanted it to say and how you wanted it to operate? What if that document was related to a trust that had millions (or tens of millions) of dollars in it? Before you answer “don’t be silly, of course not” what if I were to tell you that you that there is a good chance that you may have already done that? Multiple times, in fact. That document is your retirement plan. For many companies the provisions within it that governs how your plan will operate (the plan’s eligibility rules, its entry dates, whether the match is fixed or discretionary, what the plan’s vesting schedule will be, etc.) may all have been selected for you, without your knowledge or consent by someone you never met or spoke to.

Prototype plans are the retirement plan document of choice for most of the recordkeeping and investment platforms. They do serve a useful purpose. All of the language within it has been pre-approved by the IRS. You (or someone) decides how the plan will be operate by checking a box. The question is, who exactly is making that decision and deciding which box to check?

Read More

Millennials, Student Debt And Saving For Retirement: What’s The Correlation?

By: David I Gensler, MSPA, MAAA, EA

Everyone assumes (at least I did) the following about Millennials:

  • That they are being crushed by student debt, and as a result;
  • It restricts their ability to save for retirement through their company’s’ 401(k) plan.

 

Well, you know that old bromide about assumptions… So what impact does the student loan debt carried by Millennials actually have? As it turns out, not much according to a white paper called “How Does Student Debt Affect Early-Career Retirement Savings?” by researchers Matthew S. Rutledge, Geoffrey T. Sanzenbacher and Francis M. Vitagliano.

What these researchers found is that the relationship between student debt and participating in their employer’s retirement plan is “small and statically insignificant.” Even more surprising was that the authors found that contrary to all expectations, individuals with large loan balances were likely to accept participating in their employer’s retirement plan, if one was offered.

Read More

When Is A Retirement Plan Really Terminated? When The IRS Or The Department of Labor Says So, That’s When!

By: David I Gensler, MSPA, MAAA, EA

Yogi Berra once said “it ain’t over ‘til it’s over.” He was not talking about terminating a qualified retirement plan, but he could have been. If the steps necessary to terminate a retirement plan are not adhered to, and in the right order, the plan termination process can become a nightmare. As long as the plan continues to have assets in it, you are responsible for its ongoing administration (filing Form 5500, keeping track of the benefits of the participants who have not been paid out, etc.). Indeed, in certain cases failure to properly distribute all of the plan’s assets can force you to start the whole plan termination process all over again.

Note – All of the following pertains to terminating a defined contribution plan (a profit-sharing plan, a 401(k) plan, etc.).  It is not intended to be a guide to terminating a pension plan (a defined benefit plan). Terminating a defined benefit plan is a good deal more complicated than terminating a defined contribution plan.  I will deal with the nuances of that in a future blog.

Read More

Why Should A Plan Sponsor Care About Automatic Enrollment?

By: David I Gensler, MSPA, MAAA, EA

No one could argue the fact that automatic enrollment, when properly implemented is a positive benefit for employees. Automatic enrollment, when coupled with automatic escalation (the automatic increase in deferrals rates) will help participants who might not otherwise be inclined to participate in your 401(k) plan save for their retirement.

We can easily identify the following benefits to the plan participants: Read More

Ho Hum, Another Day, Another Lawsuit

By: David I Gensler, MSPA, MAAA, EA

Another mega-plan is being sued. This time it’s the Disney Savings and Investment Plan. The law firm that is involved found one participant (that’s all it takes to get the ball rolling) to challenge the plan’s continued holding of the Sequoia Fund.

The lawsuit alleges that the Sequoia Fund violated the fund’s own investment policy as well as the plan’s diversification requirements. They further allege that the Sequoia fund was more expensive, was imprudently concentrated in Valeant stock and that it “underperformed all 10 of the most common alternative funds.” They further claim that the stock was particularly risky and that numerous warning signs were ignored. The plaintiffs also allege that not only was the investment irresponsible, but it resulted in losses to the participants. If they could have, the plaintiffs would have blamed them for the sub-prime crisis and the breakup of the Beatles.

Read More

The Department of Labor Does Not Giveth But It Sure Can Taketh

By: David I Gensler, MSPA, MAAA, EA

Ever heard of the 2015 Inflation Adjustment Act? Well neither had I.  The act provides a formula as to how the Department of Labor should adjust its civil monetary penalties for inflation. The new civil penalty amounts will be applicable to penalties assessed after August 1, 2016 where the associated violation occurred on or after November 2, 2015.

These violations and their associated financial sanctions already exist under Title I of ERISA. However, the dollar amounts that may be assessed as financial sanctions have not changed in many years. What the Inflation Act does is update them for inflation. After this, in accordance with the Act, the sanctions will be adjusted annually for inflation.

So what are these violations and how much have the financial sanctions been increased? Read on:

Read More

What Does The IRS Know That You Don’t That Makes Using E-Certification For Hardship Withdrawals Inadequate?

By: David I Gensler, MSPA, MAAA, EA

The plan sponsor is responsible for the proper administration of hardship withdrawals. Under IRS regulations, hardship withdrawals must satisfy two criteria:

  1. The participant must be experiencing (and be able to demonstrate) an immediate and heavy financial need, and;
  2. The distribution is necessary to satisfy that immediate and heavy financial need.

IRS exams have shown that self-certification is permitted to show that a distribution was the only way to alleviate a hardship. That satisfies item number two. However, allowing participants to self-certify the nature of the hardship is not in the eyes of the IRS, sufficient. (number one).   Since both (1) and (2) must be satisfied for a proper hardship distribution, plan sponsors must request and retain additional documentation to prove the nature of the hardship. IRS exams have shown that this is where many retirement plans and plan sponsors fall short.

Read More

What Could Cause Your Plan To Be A Candidate For Excessive Fee Litigation?

By: David I Gensler, MSPA, MAAA, EA

There has been enough excessive fee litigation through the years that certain patterns have emerged. So what common traits do most of the excessive 401(k) fee litigation cases share?

The Plan Assets Are In The Multi-Billion Dollar Range – Nearly every lawsuit filed since 2006 has been against plans with assets in excess of $1 billion. That is not surprising.  These cases rarely go to trial.  They almost always get settled.  As Woodward and Bernstein were advised, just “follow the money.”  But given the enormous resources that these plans and the companies that sponsor them have, what has caused them to be so open to litigation and why did the plan sponsors almost universally choose to settle?  And what can smaller plans learn from their experiences?

Read More

The Empire Strikes Back – John Hancock Responds to John Oliver

By: David I Gensler, MSPA, MAAA, EA

OK, so I am being a bit overly dramatic here. John Hancock is not an empire and they are not exactly striking back.  However Manulife, the Canadian insurance company that owns John Hancock is ranked number 212 in Fortune magazine’s 2015 list of the Fortune Global 500.  So they are a pretty big company.  And on its own, insurance company John Hancock is not exactly chopped liver either.

Manulife and John Hancock published an open letter in response to John Oliver’s segment on Last Week Tonight https://www.youtube.com/watch?v=gvZSpET11ZY about its experience with John Hancock when it attempted to set up a 401(k) plan (you can get a copy of the letter here) for the show’s staff.

Read More