Newsletters

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:

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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.

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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?

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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.

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John Oliver Riffs On Retirement Plans and Makes Some Excellent Points!

By: David I Gensler, MSPA, MAAA, EA

In a recent airing of Last Week Tonight, John Oliver devoted an entire episode to money in general and 401(k) retirement plans in particular.  The piece can be seen in its entirety at https://www.youtube.com/watch?v=gvZSpET11ZY. It runs for 20 minutes but the actual discussion regarding retirement plans begins at about 11 minutes into the piece (if you have time, watch the whole thing – it is really, really funny). Note – There are more than a few four letter words thrown around.

In his general discussion about money, Oliver makes a statement that “money is the thing everyone likes to think they’re good with despite the evidence provided in every episode of the Suze Orman Show.” Oliver highlights Orman shooting down one woman’s request to spend money on a trip to Iceland to become a “certified elf spotter.” Oliver generously offers to provide the woman with her very own elf spotter certificate, thus saving her the expense of the trip.

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How Could Two Little Retirement Plans Have Such Big Problems?

By: David I Gensler, MSPA, MAAA, EA

An advisor who I have known for many years called me for help. His client has a problem with their retirement plans and the IRS. The company that sponsors the plans consists of four employees: a father (the business owner), his spouse, his son and his daughter in law. They maintain two plans: a defined benefit pension plan and a profit-sharing plan.

The retirement plan consulting firm that set up the plans had the father covered by the defined benefit plan with the other employees waiving out of that plan. The profit-sharing plan covers the other three employees. The father waived out of profit-sharing plan. Their goal was to give the father a large benefit in the defined benefit pension plan and have the other employees receive smaller benefits from the profit-sharing plan. I have not seen the waivers but I was assured that the signed waivers exist.

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401(k) Lawsuits move…Down Market?

By: David I Gensler, MSPA, MAAA, EA

Businesses rarely adopt a strategy of moving down market. They either stay or move up market. That certainly has been true in the world of 401(k) litigation. Almost universally, the plans being sued have had participants in the tens of thousands and assets in the billions of dollars. And why wouldn’t they? The attorneys that pursue these actions take them on a contingency basis. Years pass as they wind their way through the courts. So the only way that the potential result justifies the investment of time, energy and money by the litigating law firm is to “follow the money.”

Now, for the first time, in two separate actions, 401(k) lawsuits seem to be moving down market.

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An Annual Physical For Your Retirement Plan? – Yes, It’s Called An Annual Compliance Review

By: David I Gensler, MSPA, MAAA, EA

No one would argue that an annual physical is a good idea (we may not actually do it, but no one would argue that it is a good idea). Just like an annual physical can detect a small problem and keep it from morphing into a more serious problem, so too can an annual compliance review identify smaller legal, operational and/or fiduciary issues before they become bigger and more difficult to deal with.

I would assert that once a year, your retirement plan should be reviewed by any (and perhaps all) of the following: your plan’s legal counsel, your third party administrative (TPA) firm and your investment advisor.

Potential Legal Issue – The most frequent error that most retirement plans make is a failure to sign and date all of the plan’s required documents. All of these documents have a “drop dead” execution date. Failure to timely sign and date the plan or certain amendments to the plan can invalidate the plan. A really important execution date occurred only last month. Every defined contribution plan (401(k) plans, profit-sharing plans, etc.) needed to be completely restated and signed no later than April 30, 2016. If you don’t remember doing it or you know that you did not do it there is no need to panic. The IRS has a program (the Voluntary Corrections Program or VCP) which will allow you to correct just about any defect in your document.

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This and That…

By: David I Gensler, MSPA, MAAA, EA

I thought that this week’s blog would focus on a couple of different topics. They are related to prior blogs that I have written.

Colorado State-Run Retirement Plan Is Postponed Indefinitely

In my last posting, I wrote how the state of Connecticut recently approved a bill to offer workplace employees an automatic payroll contribution Roth retirement plan, if they did not have access to an employer sponsored plan (The State of Connecticut Is Ready To Enter The Retirement Plan Business – And This Is A Good Thing Because…). I thought that while the state of Connecticut was well intentioned, that the government (any government: municipalities, states, the federal government) has no idea how complex these retirement programs are to run. For this and other reasons, I did not think that this was a good idea.

The state of Colorado, which had previously approved a piece of legislation that was almost identical to the Connecticut bill, has put it on hold. The bill, at the request of its sponsors, was postponed indefinitely. Supporters of the measure plan to re-introduce legislation in the 2017 session. Hopefully, the plan’s sponsors came to their senses and were just looking for a way to save face so that this piece of legislation could die a quiet death.  I sincerely hope so.

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The State of Connecticut Is Ready To Enter The Retirement Plan Business – And This Is A Good Thing Because…

By: David I Gensler, MSPA, MAAA, EA

By the slimmest of margins, the state of Connecticut recently approved a bill establishing a state-run retirement plan for private sector workers.

Here is how it would work. Employers with at least five employees that do not currently offer a workplace retirement plan would be required to set up an automatic payroll contribution plan for their employees. All employees who are at least 19 and who earn at least $19,000 per annum would be automatically enrolled, once they have been employed for 120 days.

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