Old Founder of Your TPA Firm Channeling Don Quixote and Railing Against Gov't Windmills

As the Founder of Plan Design Consultants, Inc. some 40 years ago, my life has been consumed with compliance, compliance and more compliance with Government rules and regulations surrounding retirement plans.  In this blog post I am like Don Quixote and Sancho Panza railing against the Windmills in the Spanish novel, The Ingenious Gentleman Don Quixote of La Mancha. The Windmills in my case are archaic Government regulations forcing Plan Sponsors to pass out various Notices during each year.

Hey, Government!  Instead of asking all of our clients to pass out one insipid (definition of "insipid" - without distinctive, interesting or stimulating qualities) notice after another each and every year, consider a new idea that might actually educate and motivate.  What Notices are we referring to? Well, let's see. There is the Summary Annual Report, Safe Harbor Notice, Qualified Default Investment Alternative Notice, Automatic Enrollment Notice, 404a5 Fee Disclosure and that is a partial list depending upon the type of retirement plan.  Hey, Government!  Instead of thinking that each Plan Sponsor is going to work with their professional financial advisor and the financial institution providing their plan to develop and actually carry out effective employee education and motivation, consider a new idea that might actually educate and motivate.

What is the new idea?  Let's redirect some of the enforcement and audit dollars of the Government to developing a few really, really good movies or videos that can properly communicate about the wisdom of saving. Hire the best creators and movie makers from Hollywood to craft the message. Get some A-list actors and actresses to volunteer their time "for the good of America." Come on, Brad and Angelina, help us out (yea, right!).

I am betting a team of professional screen writers, combined with professional directors and actors could come up with a handful of really effective short videos or movies that could actually educate and motivate the average participant to get off their butts and start saving. Create a movie showing a saver and a non-saver later in life - you know, at retirement. One struggling to make ends meet and one enjoying life based on decisions they made about saving years ago.  Instead of each Record-Keeper inventing their own education, just have Plan Sponsors host meetings (on company time) to screen the movies or videos. Have the Record-Keepers build prominent links to the movies on their websites. Pay NetFlix and Amazon to host the movies for free. Throw some advertising dollars into the promotion.  And consider even doing some rap videos - have some rap star rail against the stupidity of not doing something for the family.  You get my drift - do anything but a boring enrollment book nobody will read.

Yeh! You're right - that is crazy thinking - let's just force a few more inane notices upon everyone.  That will work! Right?  Okay, I am done being Don Quixote fighting the Windmills - back to my work helping clients understand all the Notices they have to pass out.  Or better yet, back to helping my grandkids with their Common Core Math - who says an old dog can't learn new tricks!

See our other Post below on Electronic Disclosures (June 11, 2014)

Electronic Disclosures - Can You Pretend It is 2014 and Computers Exists?

We are often asked by our clients if they can distribute various required items electronically such as Summary Plan Descriptions, Summary of Material Modifications, Safe Harbor Notices, Qualified Default Investment Notice, 404a-5 Fee Disclosures, etc., etc., etc. Unless you are Rip Van Winkle and you started your nap in 1974 when ERISA was passed and you haven't awoken yet or you are one of our clients who has decided that all emails from us as your TPA should automatically go into the junk folder without being read, then you are aware that the wonderful regulatory arms of our Federal Government have spent the last 40 years (Post-ERISA) creating the need for you to pass out one retirement plan notice after another after another, ad nauseam.  You know, those items you work so hard to pass out to everyone (because we browbeat you into doing so even though you might have some real work to do) that are actually looked at by 1/10th of 1% of your workforce (and they don't understand it because it is in required "government-speak").  "Ad Nauseam" above is the perfect adverb because it relates to "doing something that has been done or repeated so often that it has become annoying or tiresome".

Can you distribute some of these notices electronically (via email) rather than having to print and distribute hard copy?  The answer is generally "yes."  Well, okay, we will admit it - after reading the clearly worded guidance on this topic a hundred or more times even when fresh in the morning and even with our third cup of coffee and even after having borrowed a couple of our grandkids ADHD meds to help us concentrate, we are not totally sure we understand the rules.  Below is our best effort at what we think the rules might be.

Basically, disclosures under Title I of ERISA (the Employee Retirement Income Security Act of 1974) must be furnished using "measures reasonably calculated to ensure actual receipt of the material."  The Department of Labor issued a regulation defining a "safe harbor" for complying with electronic disclosure rules.  The safe harbor is limited to individuals who meet the requirements of one of the following classifications:

"Integral Part of Duties.  "Participants who have the ability to effectively access documents furnished in electronic form at any locations where the participant is reasonable expected to perform his or her duties as an employee and with respect to whom access to the employer's or plan sponsor's electronic information system in an integral part of those duties." That is government wording, not ours.  Our interpretation of that is that if an employee's job is such that they regularly use a company email system as part of their duties, then they can be given electronic disclosures via email.  Really, DOL?  Would it be so hard to just say "If your employee uses business email regularly, then you can send them the notices they won't read via email!"  You could also have employees who use a company electronic system such as an Intranet where you can be assured that they access the Intranet frequently in their duties who could given electronic notices.  Yea, right -  that expensive Intranet you maintain to communicate with employees that they have long since forgotten to log into and you have long since forgotten to update with anything fresh that would make they want to go there.  Oh, wait, that is our Intranet I am referring to, not yours.

"Affirmative Consent.  The safe harbor also applies to other participants (e.g., retirees, former employees and active employees who do not use a computer as an integral part of their duties), beneficiaries (e.g., surviving spouse, alternate payees), and other persons entitled to disclosures under Title I of ERISA who affirmatively consent to receiving disclosures through electronic media in a manner prescribed by the regulation."  Our interpretation of this government double-speak is that if you give this group of people an annual Notice (yes, yet again another notice) properly written to have to necessary language and if they provide you with a personal email address to use for the purpose of receiving future notices, then you can distribute required notices to them through email. You might want to make the Notice and Consent Form that we can provide a part of your exit package or you could mail such a notice to their home address asking that the form be completed and returned.  Unless they return the form,  then you cannot send them notices via their personal email.  Maybe the best course of action is to get them paid out or rolled over if they are an ex-employee - but of course to do that, you have  to issue another whole set of disclosures!

If you would like to get our latest version of the Notice and Consent Form, just call our office at (650) 341-3322 and enter into our labyrinth of voicemail messages or just email your regular contact at our office.  When they get back from their meeting with their kids school Principal, they will send you the form.

Here is a link to the actual Technical Release 2011-03 from the DOL with more detail on this subject - do us a favor, if you spend a few hours trying to digest the perverse language, please let us know if you reach any different conclusions.

What Do You Mean "Give Salary Deferrals Back to Our Top People" - Are You Crazy?

If you have a Safe Harbor 401(k) Plan or pretty much any 403(b) Plan, then you can skip this entire discussion.  Wow, that is like being let out for recess early - always a great thing!  However, if you have received a communication from us telling you that you must refund some of the salary deferrals of your top people, then you probably want to read on.  Okay, you probably don't really want to read on having a million other things you need to do, but you should anyway.

Come with me on an adventure back in time....... It is the early 1980's and 401(k)'s have just been created.  Plan Design Consultants, Inc. has only been around for a few years at this time having been founded in 1975 by the man now affectionately referred to by our staff as "the old gray hair". Well, okay, maybe "affectionately" is not the applicable word for some of our staff. Anyway, back to our exciting story of mystery and intrigue.

Somewhere in the dark depths our our Nation's Capital, picture a couple of young recent graduates of Georgeton Law School are slaving away deep into the night on drafting proposed legislation (yes, I know it is really spelled Georgetown Law School, but, hey, this is a fictional story).  They are anxious to impress the Congressman that was crazy enough to hire them.   Picture Kevin Spacey of the Netflix TV Series, House of Cards - a tough task master, as you know.  They have been up for two days with the help of the best illegal stimulants money can buy and this point they approaching paranoia and hearing voices from somewhere in their head.  New legislative analyst #1 says to #2 - "We have just this one night to come up with some rules for 401(k) plans that will drive Plan Sponsors crazy for many, many years to come.  These rules need to be incomprehensible, stupid, and most of all designed to make sure that the most successful people have a hard time retiring in style.  Give me your best thoughts!"

Analyst #2 says "How about this, let's start by creating two classifications of people.  The bottom classification will be able to save pretty much as they want without any restrictions.  We can call them the "Non-Highly Compensated Employees".   Let's call the top classification of employees the Highly Compensated Employees and let's really stick it to them with the rules and let's not forget to stick it to their family members as well.  You know.... their spouses, their kids, their parents and certainly anyone owning more than 5% of the company.

Analyst #1 says "Dude, you are on a roll - take another puff and keep going!"  To which Analyst #2 says "Wouldn't it be really perverse to come up with some crazy mathematical rule, like the top group cannot do salary deferrals on the average that are more than two percentage points than the average of the bottom group.    For example, if the bottom group averages 2% of pay, then the top group would be limited to an average of 4% of their pay.  Consider how genius that would be because the bottom group cannot afford to do hardly anything and therefore the top group will really be hampered."  The Congressman will be so impressed.  With these kinds of rules we can make sure people have to pay current income taxes.

"Yes, yes, yes..... you are really onto something terrific here!  I knew there was a reason you graduated at the top of our class.  If those top people have done too much under your two percent rule, let's make them take the money back out and, check out this.... let's apply a 10% excise tax on the company if they can't get this money returned within 2 1/2 months of the end of the year.  That will really drive them bonkers - we can upset the top people, we can upset the company and we can make them "want to shoot the messenger" who would be the TPA firm doing these calculations."

"Beautiful, awesome, outrageous, most excellent - our legislative careers will skyrocket when Congress sees the superb work we have done on this.  Give me another drag on that magic cigarette, will you?  My only fear is that those legislative analysts who joined the staff of that honest, hardworking, intelligent Congressman from Kansas will create some sort of a Safe Harbor exception to our testing.  They are such bleeding hearts that they will probably come up with some rule that says you can ignore our testing if you are willing to do a certain size match or Profit Sharing contribution.  If the employer will agree to do this, they might even specify that the top group can do whatever the salary deferral limit is for the year.  I heard they might let people put away $17,500 or even $23,000 if they are old geezers (over 50 by the last day of the year).

And with their work done for the night, the young grads headed of to Foggy Bottom to seek more wisdom in the realm of Budweiser (no wait, it would have to be some IPA Craft Beer that cost $2 a bottle more than domestic beer - can't be saving that money for retirement you know) - and in the morning they can go for a Caramel Creme Crunch Frappuccino with Expresso Infused Whipped Creme and Italian Roast Coffee Drizzle.   Hey, what's $6.75 for a coffee when you are not saving for the future anyway.