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The Law of Unintended Consequences As Applied to a Business Owner's Retirement Plan

Excerpt: [A 1936 article has since been popularized as The Law of Unintended Consequences, as] in case of a business owner using the tax laws to exclude Non-Highly Compensated Employees (Non-HCEs) from his or her retirement plan if asset protection is a key objective. Why? Because a retirement plan covering only the business owner and/or the owner's spouse is not an ERISA plan, and does not qualify for anti-alienation protections under Title I of ERISA.

Don't Forget the EGTRRA Tax Credit When Setting Up a Retirement Plan

"The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) added a tax credit of up to 50% of the first $1,000 in retirement plan start up expenses for the first three years of a plan. An employer is an eligible employer if, during the preceding year, there were 100 or fewer employees who received at least $5,000 of compensation.... The employer must not have established or maintained any employer plan during the three tax-year period immediately preceding the first tax year in which the new plan is effective.... Eligible expenses include those incurred to establish the plan, administrative fees and costs incurred to educate employees about the plan."

COVID-19 Extensions for Retirement Plan Filings and Payments: No 5500 Extension Yet

"An extension for the return of excess employee 401(k) contributions was not part of the compliance relief. The return of those excess contributions adjusted for earning are still due no later than April 15, 2020 in order to exclude the distributions from income.... The [DOL] now has expanded authority to postpone certain ERISA filing deadlines including Form 5500. To date, the DOL has not done so."

Can You Put Your Retirement Plan on Autopilot?

"Having quality service providers is a good idea but they cannot relieve you, your company or your other in-house fiduciaries from all responsibility for investment and administrative decisions. Second, some financial advisory firms charge extra to act as 'investment managers.' You may find that the 'extra protection' afforded by this arrangement is not really worth the additional expense. Finally, consider other alternatives to mitigate fiduciary liability. This may include steps like adopting a suitable investment policy statement or obtaining fiduciary insurance."

DOL Targets Retirement Plans with Missing Participants

"By examining Form 5500 annual reports, the DOL discovered that some plans were reporting a larger number of terminated vested participants who were not receiving benefits. Worse yet, the DOL was able to contact a significant number of these 'missing' participants by simply sending a certified letter to their last known address. As a result, the DOL has reportedly initiated a national audit campaign targeting plans with missing participants with a view towards treating lackadaisical efforts to locate them as a breach of fiduciary duty. And, the IRS can weigh in with additional penalties for failure to make RMDs to those ex-employees who have attained age 70-1/2."

Are Corporate Retirement Plans a Bad Deal?

Excerpt: This is my first post in a new series which will analyze the retirement planning industry. I will cover 401(k), 403(b), and other (less popular) vehicles in my discussions. My hope is to unravel to some extent the cost structure of these plans and help corporate executives, business developers, and plan participants to gain a stronger understanding of how their retirement funds are being handled.

The Unintentional Procrastinator: The Plan Sponsor Whose Retirement Plan Services Are Unbundled

"Detailed employment data is crucial to correctly determining participant retirement benefits. In fact, an employee's entire employment history may be needed to determine their benefits. Without a professional service provider helping plan sponsors manage their participant data, it may not be current or easily accessible.... [P]lan sponsors in an unbundled environment commonly wait until the time of a participant's retirement to collect this information."

Dividing Retirement Benefits on Divorce, and What ERISA Has to Say About It

Excerpt: [F]rom everyone's standpoint, it's best for the Plan Administrator to review a draft of the domestic relations before it gets filed with the court. Better to resolve issues before the order is filed than the Plan Adminstrator having to determine that the domestic relations order really isn't a QDRO.

How Safe Is Your Retirement Nest Egg from Creditors?

"IRA funds dwarf the amount of retirement assets held in employer sponsored retirement plans. Those IRAs will offer tempting targets to creditors when they pass on death to beneficiaries other than a surviving spouse. Consider leaving retirement assets in your employer sponsored plans, where protection from creditors is assured, as long as possible. Alternatively, for assets currently held in an IRA, consider retaining the spouse as the primary beneficiary (that appears to be safe for now) and naming only a spendthrift trust as the alternative beneficiary[.]"

The Retirement Equity Act and Beyond

"Women have made enormous strides over the past three decades, in the workplace and beyond -- and it's important to reflect on the men and women who fought for the changes that have led to greater gender equality. One of those changes was introduced 29 years ago: The Retirement Equity Act became law, ushering in important protections for America's workers and their families.... The act lowered the minimum age requirement for pension plan participation, it prevented plans from penalizing parents who took time off to raise families, it allowed pension plans to make court-ordered payments to former spouses and it mandated spousal consent for workers to waive survivor benefits. In short, it began to recognize the working patterns of women, who remain more likely to interrupt their careers to take care of a family member, and provided greater retirement protection for women throughout the country."