The Smaller Stuff Creates the Biggest Liability Pitfalls for 401(k) Plan Sponsors.

What plan sponsors should avoid by taking care of the small stuff.


When I was a kid, I had an Intellivision. For those people born after 1980, Intelliivision was video game console that had better graphics than an Atari 2600 but people didn't buy. One of my favorite games on Intellivision was Activision's Pitfall that was far superior than the Atari version. Pitfall was a rip off of Raiders of the Lost Ark where the character Pitfall Harry tried to navigate a jungle by leaping over logs and using vines to jump over alligators. I actually got a patch for having a high score that my Aunt actually achieved. Plan sponsors have their own game of Pitfall, but the problem is that unlike the video game version, the pitfalls are usually invisible and are actually small mistakes. This article is how the small stuff can create the greatest liability pitfalls for 401(k) plan sponsors.


For the article, click here.

A Plan Sponsor's Guide to 401(k) Compliance Testing.
What every plan sponsor needs to know.


My great uncle was in the meat provisions business for over 40 years. When Uncle Jack told us which hot dogs we should eat, we trusted his opinion because he knew how hot dogs were made (the company he worked for made Sabrett). While 401(k) plan administration is a lot cleaner that the hot dog business, plan sponsors are usually unaware of the intricate work performed by third party administrators (TPAs). That's a concern because then most plan sponsors don't value the role of a good TPA. A good part of a TPA's work is the performance of compliance testing to make sure that the plan passes the required discrimination testing which is a requirement of the Internal Revenue Code that a qualified retirement plan must do. So this article describes the fundamentals of compliance testing for 401(k) plans, so plan sponsors can better understand the role of a good TPA in dealing with the administration of a 401(k) plan.


To read the article, please click here.

Stuff plan sponsors should know.

Unless they are involved in the retirement plan industry a plan sponsor must delegate much of their duties to retirement plan providers that may include third party administrators (TPAs), financial advisors, and ERISA attorneys. Despite the fact that retirement plan sponsors delegate much of their role, they are still ultimately responsible for what happens to the plan in their role as plan fiduciaries. This is why it is important that retirement plan sponsors know basic concepts about retirement plans, so they can understand their role and their liability. This article is about 10 things that plan sponsor must know in order to understand their duties and the risk involved if they are derelict in their duties.

To read the article, please click here.

Plan Theft Only Happens When No One is Looking.
Constant vigilance by a plan sponsor and the use of independent plan providers deter theft. 


I don't know what's going on in the south shore of Long Island over the past year and it wasn't just Hurricane Sandy.


A year and a half ago, the treasurer of my local school's PTA stole more than $5,700 for her own personal use including thrown her daughter a party at the American Girls store. That was small potatoes.


A financial advisor who was under investigation for stealing $400,000 from two clients, stole $1.6 million from the special needs camp that his child attended.


As the Department of Labor's Phyllis Borzi noted that multiple employer plans are suspect because one promoter of it stole $3 million from participant accounts, I guess she might have issues about a PTA fund and a special needs camp fund because there were thefts there too. Of course, Phyllis, I'm kidding.


A simple second signature requirement on a PTA or special needs camp disbursement probably would have nipped those thefts in the bud or some sort of extra oversight.


Whether it's a multiple employer plan or a single employer plan or  a hot dog stand, people will steal when there is no one looking. Is it easier to rob the local corner store or the Federal Reserve Bank in New York? Most thefts are usually involving small single employers plan where the employer is using employer money to float a failing business. A small plan with a  bundled provider is more likely to have a theft than a plan that requires an audit and has multiple plan providers. Bernie Madoff was only able to perpetuate his ponzi scheme because he was the advisor and the custodian, so he could claim where the assets where even though they weren't there.


A multiple employer plan or a single employer plan are not vehicles for theft by themselves, they can be if  everyone is looking the other way.


As plan sponsors, it's nearly impossible to make your plan theft proof, but you can make it more difficult by seeking enough independent providers that act as a check and a balance on the other providers and the plan sponsor.

There is more to fear than a class action lawsuit for the 401(k) plan sponsor.
A class action is just one threat, there are others.


International Paper is paying $30 million in a settlement for a class action lawsuit concerning their 401(k) plan for claims resulting on having their own stock in the plan, unreasonable hidden plan expenses, and fraudulently reported performance histories. Cigna paid $35 million in claims over their Plan.


Most plans aren't big enough to have a class action lawsuit against them, but they have other fears that plan sponsors aren't even aware of. While a $1 million plan isn't going to be sued by an ERISA attorney in a class action lawsuit unless they're starving, retirement plans can be targeted by an employee or two to get a quick, inexpensive settlement or the government can audit them.


In the old days, it was kind of a blue line that most plan participants never crossed and the courts didn't recognize a participant's right in making sure that plan expenses are reasonable.

It's been quite some time that unreasonable plan expenses have been an issue for plans and it went from plan sponsors winning on every turn into what looks like a Washington Generals type losing streak.


The days where plan sponsors can look the other way about their retirement plan is long over. They either need to shape up or get shipped out by participants and/or the Department of Labor.

Create a process and actually use it.  

The continuing success of building my law practice is directly attributable to my work in social media. My articles, newsletters, and the blog that you are reading is the major reason I have been able to continue to grow my retirement plan practice on a national level. The idea that social media would help build my practice was nothing new. I was trying to do the same at the law firm that I worked at for a couple of years. I tried pushing the idea that a blog, LinkedIn discussions, and articles would be able to raise my profile and client base with very little cost.

Unfortunately, I worked in a bureaucracy and a managing attorney who was more interested in staying in power than getting anything done. Of course to counter my interest in social media, 


Lois decided to develop a social media committee. The committee wouldn't include the two associates that were interested in social media (I was one of the two), but the technology manager that wasn't a lawyer and two partners that had no interest in pushing social media. It seemed tome that whenever Lois didn't want something done, she created a committee for it. The role of the committee was to not get anything done, it was just to say there was a committee for it. Months later, I asked the technology manager in a line stolen from The Outlaw Josey Wales: "are you guys doing anything about social media or are you just whistling Dixie?" Almost four year later, they're still whistling Dixie.


When it comes to a retirement plan sponsor, starting committees to manage their retirement plan is a good idea. But if the committee never meets and never gets anything done, it doesn't do what it was supposed to do. What it's supposed to do is help manage the plan. If a plan sponsor puts a process in place to manage the plan, the process isn't enough. Completing the process is.  It's nice to have an apparatus in place, but if it's not used, it's just window dressing and window dressing doesn't help the plan sponsor in any defense against claims they breached their fiduciary duty.


It's incumbent on a plan sponsor to develop a process in place to manage the plan and to actually implement the process. Some will say that a plan sponsor that creates a process that it never implements is worse off than the plan sponsor who never had a process. I don't know about that, but a committee that never meets or never implements anything for the plan is just another feather in a plaintiff's case against any plan sponsor that don't do their job.

Being a plan sponsor is about a process and not a rate of return, but plan sponsors need to actually implement and follow the process that they created.

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The Rosenbaum Law Firm Review, November 2013, Vol. 4, No. 11
The Rosenbaum Law Firm P.C.
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Garden City, New York 11530


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