Of all the retirement plan events held annually and across the nation, I favor and respect the NAPA 401(k) Summit(the National Association of [Retirement] Plan Advisors, starting this coming weekend in Las Vegas.  I like that NAPA boasts and lives up to its hype and billing.  From personal experience, I know the 401(k) Summit will offer substantive ERISA/Tax material, ambitious and productive networking, insights to Capitol Hill's goings on, and "unbiased content designed for advisors by advisors."  (Emphasis mine.)

I have biased advice that I want to share with retirement plan advisors, even though this year I can't make it to the 401(k) Summit: 

  1. Carefully screen the retirement plan service providers you recommend to your client.  Use the Summit to vet out those providers (those with whom you currently partner and those whom you are currently prospecting) who can guarantee ERISA/Tax compliance for the mutual client.  
  2. Brush up on some minor ERISA and Tax basics.  Use the Summit to re-familarize yourself with some of the technical aspects of retirement plan operations.
  3. Be aware of new rules that will impact retirement plan design, cost, and operation (see my comments re: how the DOL's proposed changes in OT calculations based on a salary threshold could cost an employer even more money if the rule goes into effect).

This is not an attempt to condescend, but rather an invitation to plan advisors -- if heeding this advice -- to  try to distinguish themselves from their cohorts.  

I had three different calls in as many weeks from three retirement plan advisors from across the country.  Each call showed me where the plan advisor (or the team it had assembled) had been deficient, remiss, outright wrong.  In my opinion, the advisor's client (the company who sponsored the  401(k) plan and which company I wish I represented directly) might even have a claim against the advisor, but it wasn't the client inquiring of me, such that I could guide the actual plan sponsor in corrective actions.  Thus, all I can do is share these anecdotes with retirement plan advisors out there, in the hope that they gain insight regarding mis-advice to employers. 

Note: some of the names and facts below were intentionally obfuscated to protect the. . . er. . . culpable.


First advisor:  ABC's 401(k) plan failed a top-heavy test for two years straight.  No one had caught the failure; no one advised the employer there was a discrimination problem that needed correction.  I advised the employer to disgorge the discretionary contributions (in which employees were already vested) for prior years and apply those contributions instead towards the mandatory top-heavy contributions.

Me:  Wrong.  Why didn't anyone counsel the employer on how to read those annual discrimination tests that are stapled into a nice and neat package?  Lots of things to consider: the plan might be at risk for disqualification of tax benefits; there could be a violation here by the plan advisor recommending that employees be stripped of money already in their accounts now to help the employer meet its obligations to meet top-heavy rules; etc.  


Second advisor:  I decided to change the investment options for HIJ's 401(k) plan.  Everyone who served the employer and its 401(k) moved briskly to create the new investment line-up.  Employee participant funds were transferred quickly.  However, the employer/HR director/TPA/custodian/recorkeeper forgot to distribute the DOL-required blackout notice.  Everyone's pointing fingers.

Me:  Are any of the fingers pointed to you, retirement plan advisor -- the one who changed the actual investments?  You didn't think to coordinate with the other service providers whom you hand-picked to ensure that your client gave proper notice to the affected employees, based on an investment line-up change you recommended?  How will your client handle this question on the 5500 (and will you admit your equal culpability in oversight?):  

If this is an individual account plan, was there a blackout period?” And, if so, did you provide either “the required notice. . . ?" 


Third advisor:  In October of 2018, I told my non-profit client, the employer XYZ, and its employees at an on-site staff meeting that it could terminate its 403(b) plan "without penalty," and participants could simply cash out their 403(b) plan balances. . . Wait. . . Participants who took distributions after plan termination started receiving 1099s in early January 2019.  Those who were not yet age 59 1/2 at the time of distribution of their 403(b) plan balance seem to be subject to a 10% early distribution penalty.  

Me:  Did you forget to read all the plan notices that employees received, including the 402(f) Notice that explains the rollover rules and the effects of not rolling it over?  Why would you misinform your client with a position that is contrary to 1) the law and 2) the plan documents?


What's the bottom line?  Perhaps retirement plan advisors should brush up on their understanding of ERISA and Tax rules.  From my perspective, it really looks like the employers here could have avoided costs of corrections, attorney fees, fiduciary exposure, liability to the IRS/DOL, and a PR issue if their advisors were more conversant with the rules that govern their practices with respect to retirement plans.  Some advisors just need a little ERISA/Tax finetuning.


[To employers, with respect to your retirement plan advisors]:

Trust, but verify.


To employers out there who sponsor 401(k), 403(b), and other employee benefit plans, I urge -- like Ronald Reagan once did -- that, with respect to what your retirement plan advisors are saying to you:  Trust, but verify.  

Just as with the scenarios above, those advisors might be mis-advising you with your fiduciary duty, operations, and exposure.