Bill Berke

As we now can see from the various reports on Benefits Link, the Pres's proposals reflect his philosophy of taking care of his contributors and moneyed suporters (like all politicians), and to neglect the rest of us (until election day - and why do we re-elect anyone?). The financial companies are all in favor of this. The org's that have small businesses and individuals as constituents are opposed. Another form of class warfare. The insurance/stock selling/money managing companies won't lose much in existing accounts (note the grandfather provisions for account maintainance) and they get out of the admin business (more profit), eliminate some liability and get more money under management on an INDIVIDUAL basis where the ripping off, er profitable, business will continue and grow. I sure would like to know the resume of Pam Olsen who is Bush's political appointee who wrote this. IMHO, this is the most obvious example of Bush's deep philosophical disdain for anyone not rich or not a large corporate executive (and I do generally support him - no jeers, please). Exactly how many people can afford $15,000 after tax? I think some major form of this will pass unless it is used as a sacrificial lamb in the negotiations to get the tax package passed. The only part of the proposal that really bothers me is the elimination of cross-testing and integration. As most of us on this message board know, these two features, especially cross-testing, has been, in my experience, a great motivator for small employers to install and maintain plans. But, unless you work with small plans (Bushies have no clue), these two allocation methods seem stupid/wasteful because few large companies take advantage this. The overall issue is that everyone has underestimated Bush and what he can get from Congress. If he really wants this (and that depends upon how hard he is pushed by his supporting financial firms) my suspicion is that it will get passed pretty much in tact because the financial firms see the windfall it is to them (again, see the headlines on today's Benefits Link to see who is pro and who is con). These firms will now be dealing with, almost exclusively, individuals, not the pension committees that, collectively, usually ask questions the financial firms do not want to answer.

This thread was made rather meaningless once the DOL issued Adv. Op 2001-4(?) where the National Office shot down the Kansas City's office absrd positions. Reading that Opinion and the examples should give you rather clear guidance on what is a proper plan expense. And having the plan pay for audit expenses is a proper charge. As you noted, the plan cannot pay any penalties or fines levied as a result of the audit.

I agree with W Myer that you could amend the current document and add a 401(k) feature. However, I suspect that you are dealing with a prototype document, which means, as a practical matter, you are likely going to have to amend and restate the plan in its entirety - perhaps using (substituting in) the current Keogh prototype sponsor's 401(k) prototype document. This should not be any big deal. Just crossing the t's and dotting the i's properly. And you don't have to stay with the current document provider, but it would probably be easier to stay, especially if the document sponsor also holds Keogh assets or has sold investments to the Keogh plan.

Hi Kirk, nice to hear from you. Aren't you doing exec comp? Or are all the options under water? All I said was that there are some employers who are simply fed up with all the hassles of 401(k) plans and that for some publicly traded companies, more requirements and hassles will tip the scale to plan termination. And we have terminated about four 401(k) plans this year exclusively because the employer got fed up with the employee and admin hassles. But, 401(k)s won't be terminated en mass in this personnel climate. And over-regulated DBs didn't come back until 415(e) got repealed. It sure was a boon to our practice - we now have about 125 db plans - the biggest has 9 employees and the vast majority have one or two employees. I still do not see DB popularity increasing in general, just within specific professions and situations. Is your recent experience different?

I think that , for purposes of this discussion, we should make some employer distinctions. One obvious one is publicly traded corp's vs. closely held. No closely held business I know of has employer stock in their 401(k) plan. Some have ESOPs, but that's another discussion. The employer stock diversification problem is exclusively a publicly traded (large) employer issue. And the short-term issue that the Boxer/Corzine bill addresses avoids the larger policy discussion that has never taken place. And until some senior Wash. person (in Congress or the Exec branch) has the bravery to have an open discussion away from Wash., many market place realities (problems, behaviors, knowledge, etc.) will not be recognized or discussed. For example, as we all know, a small business owner is no more an able investor than the average American. Yet, they are charged the various fiduciary responsibilities with no substantive help from anyone - especially the one agency with the power and authority in this area - the DOL. As a result, small pension plans are fair game for the buzzards on commission. I'm sure all of us have a multitude of examples where a small plan was harmed by the various financial vendors. Large companies maintain plans for hiring competition and to minimize turnover. However, these employers will not be anymore generous than required. They view the plans as expensive necessary evils and assign the operation to H.R. clerks. . Non-profits would always go for rich plans (that they can't afford in the long run) because they are not bottom-line oriented. So part of any discusion must distinguish the motiviations, abilities and attitiudes of the various types of sponsors At this point, I think that the history of how we ended up with the stock limitation rules and the "policy" reasons for the way ERISA was constructed is irrevlevant. What is needed is the honest, open discussion regarding today. However, it will not happen. In addition to the politician's egos and the Congressional staff's private agendas, we have the the fox (former ACLI Exec. Director) in Ass't Sec'y Ann Coombs as head of the PWBA. No proposal which helps the public and limits the insurance/security industry's ability to profitably rip off the plans will ever get through. This is the same senior government official and Pres. Bush official representative who testified in favor of the first Boehner advice bill (which was written by the insurance industry). If you remember, this first bill was so bad, even Boehner's fellow Republicans demanded amendemnts. But the Bush administration (through Ms. Coombs) supported it. And the ripping off I see is done by the various commissioned vendors and their sales representatives to small companies takng advantage of the psychology and trust of the owners. I've seen large make poor vendor selections because they assign the selction process to employees who have little investment and no ERISA knowledge. The government's politics and the DOL's laziness and effective incompetence result in the public being taken in ways they are not aware of. Mutual Fund magazine (and others) have written extensively about all the undisclosed costs/fees and their negative longterm effects. Yet there has never been the political climate in Wash to take on the securities and insurance industry without jeopardizing their campaign contributions. So I'll stop so someone else can lead this discussion.

As a TPA with some publicly traded companies for clients, all will be affected by the two bills. I believe the affect will happen in three ways; 1. Smaller matches (or outright cancellation of the match) if employer stock is limited to a percentage of the account. 2. Smaller matches if the employees can sell the stock at a presribed time. The problem here is that massive selling by employee-participants could either disrupt the trading, artificially lowering the stock price, and/or be interpreted as a loss of faith in the company's future. 3. A termination of some 401(k) plans. In fact, almost all my clients would love to get rid of their 401(k) plans after experiencing years of hassles, lawsuits, unknown liability and all the other employee-participant issues that come up because the 401(k) area has never been objectively evaluated by the government. And wait until some employer gets nailed big time under 404© (or lack of it as a defense). The more these plans are haphazardly regulated/litigated, the more dangerous they become to employers. Overall I believe the problems are; 1. A lack of an investor/individual orientation from the various responsible regulatory agencies (SEC, CFTC, DOL,etc.) and, 2. A lack of meaningful sales disclosure rules with clear standards and punishments for failing to comply. How many article and studies have consistently proven that most American are poor investors (including small business owners and executives of large companies). Even when a company offers training, the classes are poorly attended. So the policy issues must deal with all these individual realities. Perhaps controversially, I currently believe that Enron's 401(k) plan did nothing wrong. The officers and directors should be held fully accountable for the apparent fraud and abuse. One of the items I've not seen addressed is how Enron, through its influence, got away with so many things which allowed the climate for the arrogance, fraud and horrible results to happen. For example, Wendy Gramm, a board member and Senator Phil's wife, was head of one of the two regulatory agencies that supervised Enron just prior to her "coincidental" appointment to Enron's board. Similarly, per Times Magazine, the former head of the FERC was told by Kennth Lay to support an Enron position or be fired. He didn't support Enron and Pres Bush fired him and appointed someone proposed by Enron. This sure makes a strong case about campaign finance rules and looking at the post government service work rules.

What is your objective? What's the point?

Bob, your experience is quite common. Vendors' staff are not technical, they are only trained to answer common, simple questions to enable the money to come under management. What a surprise!! Gary is the all time pro in this area and I repeat that I have never seen an integrated SEP prototype. But, the few SEPs I've been a consultant to were all with various stockbrokers (Schwab etc.) and maybe the insurance industry has integrated plan documents. Still, what bothers me is the whole purpose of the SEP is to let an employer easily understand how the plan works, and self operate by being able to figure out eligibility and allocation (non-integrated). An integrated SEP must be calculated by someone with some pension knowledge - not the case at an employer or even at most vendors. And I have a very healthy skepticism regarding insurance companies back office competentcy and servicing. One other thing, especially with small business owners (almost all my clients) 401(a)(10), via a reference to 401(d), limits compensation that can be considered to the business that has adopted the plan. So, if your client has two (or more) sources of earned income, then each of his/her unincorporated businesses must adopt the plan to use that business's earned income for SEP purposes

I have been a partner in the same TPA firm for 20 years. Prior to that I ran two small-plan TPA firms (one with 3500 clients, the other had 1000 plans). This question is always difficult because the key is how the firm operates. One rule of thumb, mentioned above, is that you need a person for every $100,000 to $125,000 of gross revenue. However, managment must evaluate the worth of each person and their job responsibilities and how the firm is actually operated. 5 minute proposals are always aggravating, expensive and time wasters. If a firm allows this (who doesn't at some level?) management must incorporate that into the staffing requirements. We operate radically different than most TPA firms. Clients are not assigned to an administrator, rather they are worked on in the order the info comes in (first in, first out with deadlines a rare exception) and we have a clerical/computer process to control the scheduling of the work. So any one admin may not see a particular plan again for two or three years. Also, admins in our company don't talk to clients (well, hardly ever) because that is the specific responsibliity of us three partners. We also have a clerical staff for clerical functions. Larger census is inputted by the clerks, small plans are input by the admin. Only clerks photocopy and assemble final year end packages. I'm sure there are other material operating differences (we don't sell anything, nor do we get any allowances, nor do we do daily or quarterly 401(k) plans). My point to this is that there is no accurate employee standard because it all depends upon how the firm is operated. While I used to say that an admin could handle 125 to 150 plans, that is still true only if they are all small plans , no 401(k)s, and few DB plans. I think the gross revenue measure mentioned above is the best estimate /evaluator, but that only measures a total people needed to total gross, not the specific employee breakdown.

For our small plans we use the IRS SSA letter forwarding process, as you did. We wait six months and then forfeit - as allowed in our volume plan. Our large plans additionally use a private person finding service - Equifax is one - and then we forfeit. If you're lucky, your plan says when you can forfeit a lost participant's account. I don't know the prototype rules or whether all these plans are the same because of the IRS requirements, or if each prototype sponsor can draft this differently. If the plan is silent then, imho, the plan sponsor must draft an administrative process that it follows

To add to your woes regarding what I surmise is a royal screwing from Nationwide, one of the considerations you should be aware of is how you handle a client asset transfer to or from Nationwide could easily make you a fiduciary, thereby running into ERISA which forbids you from receiving commissions or allowances. Many of you wrote describing, essentially, that the clients followed your recommendation and furthermore stated or clearly implied that your recommendation was the primary basis for the decision to select Nationwide (or its substitute). These types of comments and actions, if proved, can make you cannon fodder for the DOL. If my surmise is correct, be aware that in most deemed fiduciary cases, the federal courts are looking at the entire relationship between the TPA and the client and, most times, determine that the TPA is a fiduciary. There are federal cases where the agent received the commission directly and he/she owned the TPA firm which did not receive any commission. The courts looked at the "package" to determine that the agent and the TPA firm were both fiduciaries. While I use the word "commission', I include expense allowances and marketing allowances, which are really commisions by another name. If you are deemed a fiduciary in a breech situation, all the commissions earned will have to be disgorged (and, in addition, you will pay the ERISA 20% 502 l penalty). So, as you go through the trials and tribulations foisted upon you by Nationwide, remember that your conduct when presenting investments and your influence over the plan sponsor could easily result in you being deemed a fiduciary. You must always make sure the client knows that you are acting in the capacity of a commissioned salesperson when you are dealing with assets. And I suspect that, sooner rather than later, a TPA who was terminated by Nationwide will find itself named a co-fiduciary because of subsequent actions and then the agent and/or TPA firm will discover (actually the lawyer will discover) that he/she is a fiduciary. A good lawyer will name you in the suit and let you bear the burden of proving you had nothing to do with the claimed breech. As your lawyers will tell you, the discovery process most often turns up unpleasant things for someone. My question for your lawyers to answer is who does the contractholder client belong to? If you continue to be the TPA on these clients and Nationwide doesn't provide you with the information you need to complete the 5500, its schedules and the related compliance notices, it seems to me that Nationwide could be in trouble with the DOL. But that comes back to the question of whose client is it? Our firm does not sell anything, nor do we recieve any type of commission or allowance. As a result, many insurance compnaies won't cooperate to get us the needed info timely. I have had great success notifying the insurance companies' legal departments with a letter from the client stating the I am the TPA and all appropriate records and correspondence must be timely delivered to my firm or we will hold the insurance company responsible for any penalties caused by their lack of cooperation. These companies are parties-in-interest (at a minimum) and their lawyers know the rules and which games they can play safely.

I noticed that documents have been barely mentioned in this discussion. I, personally, have never seen an integrated prototype. I have been told that some insurance companies sponsor an integated SEP document. Whether or not the document contains SARSEP language, it must contain, at least, an integrated allocation formula. I suggest you read the entire document, not just the adoption agreement.

From my perspective, you are dealing with large plans. Our average client has less than 20 employees and less than $2 million in assets. I said small plans. And everything else you just said is 100% correct. This is a far better case for an RIA managed plan with all the cost savings (and, most likely, much better investment results). FYI we do recommend that our clients consider RIA managers for their investments, we just keep the pres/owner as trustee.

I agree with Andy (again!!) There is no reason to change if the client is happy (especially at the annual contract review meeting). Although, why anyone would be happy with an annuity is beyond me. And I'm not discussing the risks of plan violations because we know the insurance company will not provide good advice (or any advice). I also think that having one annuity is not a fiduciary issue provided the selection process was kosher, the annuity is "broadly" invested and all the fiduciary operating responsibilities were/are followed. Jon, my experience (mostly with small plans) is that the costs and hassles that come with a corporate trustee/custodian do not offset the benefit of adding a deep (or deeper) pocket. Unless the bank has disretionary investment powers (in my experience bank investment results are poor), all you are doing is hiring an expensive bureaucracy as a bookkeeper. I surmise that you work mostly with large plans.

I've also found this to be troublesome. There are old, still relevant, IRS rulings which distinguish between separation of service and break-in-service. I am of the belief that until you actually perform no more services for the employer you have not "retired" or "terminated. This belief stems from those old rulings. As long as your employee works "parttime", he/she has not separated from service (and not retired). I think you will find this stuff under the old "lump sum" distribution rules.