Effective January 1 of this year was the right of participants to an extended period to rollover their defaulted loan amount, if the default arose following unemployment or the termination of a plan. The statue has a fundamental flaw: it confuses the rules related to the taxation of the loan with the distribution rules related to defaulted loans. The practical effect of this confusion is that it is virtually impossible to effectively use.
Continue Reading TCJA’s Defaulted Loan Extended Rollover Rules have a Serious Technical and Fiduciary Glitch

The Tax Cuts and Jobs Act’s participant loan changes (which delays the account offset on loan defaults related to unemployment or plan termination) triggers something we would all rather not look at:  the “uncomfortable” manner in which ERISA’s fiduciary rules apply to loans and their administration.These changes should cause plan sponsors and recordkeepers to consider new choices about their handling of loan defaults, something they haven’t had to do in nearly 18 years. This matters because changing a plan’s loan rules is not a minor technical act. Loans are investments subject to the same ERISA prudence rules as any other plan investment, and changes to loan procedures impacts the investment.
Continue Reading Tax Act’s Participant Loan Changes Compels Fresh Review of “Uncomfortable” Loan Fiduciary Obligations

The complex nature of handling 403(b) plans-and, in particular, the unique manner in which the fiduciary rules apply to them-make these plans uniquely suited to customized fiduciary services. It is well beyond the skill set of many 501(c)(3) organizations to make sense of their often complicated 403(b) programs, and to put them into some kind of sensical order. This must be done all the while applying a number of rules intended for the 401(k) market (with their centralized recordkeeping systems) in a plan which may have significant assets held by multiple vendors under a variety of contracts with differing terms.
Continue Reading Managing Critical 403(b) Issues through Proper Allocation of 3(16) and 3(21) Fiduciary Responsibility

It is easy to forget that the fiduciary’s exclusive obligation is to provide retirement income from these plans. ERISA is pretty clear that even 401(k) plans and 403(b) plans are actually meant to provide retirement income. They are “employee pension benefit plans” under ERISA Section 3(2)(A) which each “provides retirement income to employees, or results in a deferral of income by employees for periods extending to the termination of covered employment or beyond.” In the day to day operation of a plan loan program, this raises a troubling issue- particularly when a plan design forces an loan default offset of a participants accrued benefit following an involuntary employment (such as a layoff, death or disability), where the retirement benefit is lost under difficult circumstances where there is little chance to recover.
Continue Reading The Fiduciary Underpinnings of Plan Loans

There is a potential impact of the 403(b) University Lawsuits on the ability of 401(k) plans to maintain self-directed brokerage accounts. These 403(b) plans, with their wide variety of investments which are subject only to the control of the participants, are essentially structured in the same manner as SBDAs (without many of the security law protections that are given 403(b) participants). Should the plaintiffs succeed in their calms that it was imprudent to permit employees the ability to invest in a wide range of securities without fiduciary oversight, this may well be the death knell of SBDAs.
Continue Reading A Potential Impact of the 403(b) University Lawsuits on 401(k) Self Directed Brokerage Accounts

As in all things 403(b), it seems, retirement rules of generally applicability take unusual twists when applied to 403(b)plans. The DOL’s fiduciary rule is not saved from that same problem. A close look reveals interesting twists in the manner in which the rule affects (or doesn’t at all!) 403(b) plans, which simply do not apply to other participant directed defined contribution plans.
Continue Reading 403(b) and the Fiduciary Rule

Remembering that ERISA does NOT preempt the application of other federal law (like the SEC, Anti-Money Laundering, and the Patriot Act rules-just to name a few), which we continue to learn to integrate into our practices, we now may find ourselves needing to deal with the Federal Trade Commissions standards as well. The issue arises from something as innocuous as the website privacy policies which are so commonplace on retirement plan vendor websites (you know, those things know one ever reads or pays attention to). Well, it appears to matter to the Federal Tead Commission.

Continue Reading Website Privacy Policies and the Federal Trade Commission’s Authority over Retirement Plans

The DOL just published its first serious guidance on supporting lifetime income with the publication of FAB 2015-2, guidance which is very necessary for the success of the Qualified Longevity Annuity Contracts, as well as DC lifetime income income. The FAB is an initial, but substantial, step in addressing one of the most pressing of the ERISA issues related to providing lifetime income from defined contribution plans.
Continue Reading DOL Provides Key ERISA Guidance on QLAC/DC Lifetime Income

In what appears to be one of the first reported appeals court cases involving school district liability under state law related to a wrongfully administered 403(b) plan a Wisconsin court found was that an action alleging a failure to exercise ordinary care in the administration of a 403(b) plan, if proven, could be a fiduciary breach under state law. This breach then may entitle the participants relief in state court.
Continue Reading Fiduciary Liability for 403(b) Non-ERISA Plans?