Andrew S. Williams examines the SECURE Act and what it means for employers’ retirement plans.

The Federal Emergency Management Agency’s (FEMA) “funeral assistance” program will continue to provide benefits for individuals who incurred funeral expenses due to a death caused by COVID-19 through September 20, 2025.

The Secure Act 2.0 involves many benefit-related matters including changes to the prior law. The relief offered by this act applies both to affected participants and their beneficiaries as well as the fiduciaries responsible for plan operations, including the employer which sponsors the plan; however, this is not blanket relief.

President Biden signed a resolution terminating the COVID National Emergency as of April 10, 2023, which will leave plan sponsors and their advisors one month less time to adjust their documents and practices relating to certain provisions.

Signed into law at the end of 2022, the SECURE 2.0 ACT of 2022 includes provisions that, in general, favor and promote employee ownership through Employee Stock Ownership Plans (ESOPs).

ESOPs have long been favored in legislation on a bipartisan basis, and it seems that entrepreneurs and business owners will be able to count on their availability to use as a unique succession planning tool.

Fiduciaries who handle investments for self-directed 401(k) plans are increasingly exposed to liability for their investment decisions. Those fiduciaries, including employers and individuals charged with investment selection, are being second guessed in court actions for the investment funds they select.

Although the courts are divided, there are some guidelines that plan fiduciaries need to consider when reviewing their plan's mix of mutual funds offered for participant investment.

Courts are now sorting out who is responsible when an impostor diverts a participant's retirement funds with fraudulent distribution requests.

Can the employer, as the plan sponsor, be held responsible when an outside service provider honors a suspicious distribution request?

One federal court recently dismissed such a case against the employer because the plan's website provider was alleged to have processed and authorized a fraudulent online distribution request without adequate participant confirmation. However, employers are plan fiduciaries with a duty to select and monitor the performance of plan service providers. This opens the door to potential claims against employers for their alleged failure to pick service providers with adequate cyber security practices - even if the employer's own data systems are secure and well maintained.

What should an employer do about this?

At least two pending federal cases deal with attacks on individual 401(k) plan accounts. The fact patterns are similar: a participant submits an electronic benefit withdrawal request to the employer or the plan's record keeper. The request is passed on to the plan's custodian for implementation.

The custodian, as holder of the plan assets, then transfers the requested funds to the participant's bank account This is a routine transaction and the distribution has been implemented as intended.

So what is the problem?

Recent cases against university-sponsored retirement plans include allegations that these plans are complicating the investment decisions of participants because the plans offer too many investment choices.

As alleged in one complaint, the plans provide so many options that participants are left with a "virtually impossible burden" of deciding where to invest their retirement funds.

Former participants in a 401(k) profit sharing plan have filed suit in Federal court in New Jersey seeking recovery of investment losses allocated to their accounts by the employer-sponsor.

Much has been written about excess fee claims involving 401(k) and 403(b) retirement plans. In fact, a St. Louis law firm has specialized in filing class action excess fee cases around the country. So, the personal risk to retirement plan fiduciaries has been well documented.

Doctor X’s various schemes to deprive employees of their plan benefits reduced their lump sum payments by almost one-half! This could leave a lot more money for Doctor X – who also was a participant in the plan.

What can you do if your retirement plan operations don’t square with the provisions of your plan document?

The U.S. District Court for the Southern District of Iowa granted Bankers Trust’s motion for summary judgment. In doing so, the court determined that the language of the Release was so broad that it included ERISA claims, and that Bankers Trust was protected by the Release as a person “acting on behalf of” Telligen stockholders.

Service providers for 401(k) and other retirement plans require access to personal data on participants including name, age, address, date of hire, compensation and possibly social security number. This data is necessary to allow plan administrators and recordkeepers to properly allocate plan contributions and earnings to individual participant accounts, to prepare participant statements and for income tax reporting purposes.

Retirement plan retention requirements are pretty clear. The retention lapses that do occur both in the Estate of Barton case and in our experience usually result from business acquisitions where the acquiring business either does not receive or fails to retain the “forever” records of the acquired entity. So, any due diligence checklist in a business acquisition should contain a detailed inquiry about the target’s “forever” records. And yes, you can retain your own forever records electronically in accordance with applicable Department of Labor regulations.

Legislative concerns about 401(k) participants who are financially unprepared for retirement has resulted in a number of specific provisions intended to encourage participants to save more. Those provisions include tax credits for small businesses that include automatic enrollment provisions in their 401(k) plans, expanded availability of multiple employer plans, 401(k) eligibility for tenured part-time employees, postponed start date for required minimum distributions from age 70½ to 72, and penalty free participant withdraws of up to $5,000.00 upon the birth or adoption of a child.

Roughly one in six emergency room or hospital visits results in surprise billing, although the odds vary significantly depending on where you live. Such charges can be significant as the out-of-network doctor typically charges a full “list price” for services. Consumer bankruptcies have resulted because in some cases surprise billing has amounted to tens of thousands of dollars.

The Department of Labor issued guidance in mid-2018 which allowed employer associations to adopt a single multiple employer health plan to cover a greater number of employers and their employees. These Association Health Plans (or “AHPs”) were intended to allow more smaller employers and self-employed individuals to band together in order to secure simpler health plan arrangements and cheaper coverage in the marketplace (our February Benefits Bulletin provides some of the details here).

The Illinois Secure Choice Savings Program requires employers with at least 25 Illinois employees to set up a state-sponsored IRA based retirement program if they do not already have a retirement plan. Although the program is funded solely by payroll contributions from employees, subject employers must go through an online registration and enrollment process, forward payroll contributions to the program custodian and provide program information to employees.

Department of Labor proposed regulations would allow certain employers (including employer groups or associations) and business owners with no employees to share a single 401(k) plan. This arrangement would transfer administrative and compliance responsibility to the sponsor of the retirement plan under a multiple employer plan, or “MEP.”

In McLain v. Poppell, it was alleged that Dr. Poppell, owner of the Emerald Coast Eye Clinic and trustee of its 401(k) plan with total investment discretion, invested plan assets primarily in VirnetX, a publicly traded company whose principal business was acting as a “patent troll” (a company that acquires patents and uses them primarily to sue other businesses for alleged patent infringement).

Whether you are an accountant, lawyer, banker, business consultant or investment advisor, many of your business clients will have a 401(k) or other qualified retirement plan. You may not specialize in retirement plans, but consider the following as the kinds of things you might do to assist your clients and prospects with their retirement plans:

No fee mutual funds are here!

We’ve all read about the lawsuits questioning an employer’s 401(k) investment fund selections and related claims of excessive fund costs. And typically a plan’s professional investment advisor (yes – you should have one unless you have an investment professional on staff) meets with company representatives periodically to discuss a detailed report on fund investment performance and any recommended changes in the plan’s investment fund selections. So, your 401(k) plan files bulge with investment-related materials (and they should!). But what about the rest of an employer’s 401(k) responsibilities?