The Law Firm Review - January 2014

by Ary Rosenbaum

Future Threats That a 401(k) Plan Sponsor Should Be Aware Of.

What might be good today, may not be good tomorrow.

What was good yesterday might not be a good today. Asbestos was a great fireproof building material until it was found to cause asbestosis and malignant mesothelioma Thalidomide was a great drug for morning sickness until it was discovered it caused birth defects. Those tax shelters in the early 1980s saves taxpayers a lot of money before the Tax Reform Act of 1996 killed them with limit on passive activity losses. What was good then isn't good now and what is good now may not be good tomorrow. As a retirement plan sponsor you have to understand what isn't good now and you need to be concerned what might not be good later. This article talks about what maybe issues for plan sponsors in the future, as governmental action and litigation may make what is OK today not so good tomorrow.

For the article, click here..

10 Hidden Liability Pitfalls for Retirement Plan Sponsors to Avoid.
Stuff you should watch out for before falling into.

Being a retirement plan fiduciary such as a plan sponsor or a plan trustee is like being a homeowner. Homeowners see their homes as a serious financial accomplishment and an important investment. Homeowners are unaware of the hidden liability pitfalls that homeownership entails, like lawsuits for those injured on their property or the liability to trespassers who are injured because of an attractive nuisance like a swimming pool. The same can be said of a plan sponsor or a plan trustee that is unaware of the hidden liability in their roles as plan sponsors. Retirement plan sponsors have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. These responsibilities include: acting solely in the interest of plan participants and with the exclusive purpose of providing benefits to them; carrying out their duties prudently; following the plan documents; diversifying plan investments; and paying only reasonable plan expenses. While these duties seem pretty straightforward, there are certain instances where a plan sponsor is unaware that their action or inaction puts them at risk to liability from either plan participants or governmental agencies such as the Department of Labor (DOL) and the Internal Revenue Service (IRS). For plan trustees, that liability may be personal liability. This article details pitfalls that plan sponsors are usually unaware of, that exposes them to potential fiduciary liability.  

To read the article, please click here.

What you don't know may hurt you.
When my wife and I bought our house, there were quite a few things that the previous owner forgot to tell us such as the fact they never bothered to pull the pipes from the dental office run by a previous owner 20 years earlier or all the bad carpentry work that the husband was a complete failure at doing it himself. When it comes to you sponsoring a 401(k) plan, there is no set of instructions given to you on how to properly operate one. So this article is about the things they never tell a plan sponsor in operating a 401(k) plan.

To read the article, please click here.

Offering Self Directed Brokerage Accounts in a 401(k) Plan is a Bad Bet.
The hidden pitfalls of letting brokerage accounts in 401(k) plans. 

I love Las Vegas and I hate to gamble, which explains why I haven't been to Atlantic City since 1995. I love the sights, sounds, the entertainment, the food, and everything but gambling. I hate gambling because I don't like to lose and no matter what people say, the casinos win in the end. As Sam "Ace" Rothstein played by Robert DeNiro said in the movie Casino, "In the casino, the cardinal rule is to keep them playing and to keep them coming back. The longer they play, the more they lose, and in the end, we get it all." 401(k) plans with self-directed brokerage accounts that allows participants to choose almost any type of investment is another form of gambling and a plan sponsor may unknowingly expose themselves to liability by offering this feature when plan participants "crap out". This article is about the hidden dangers of 401(k) plans in offering self-directed brokerage accounts to plan participants.


To read the article, please click here.

Plan sponsors should take stock of all plan amendments.
Plan sponsors must sure they have everything they need to have when it comes to plan documents.

I didn't have such a wonderful time at law school because I felt the administration and much of the faculty weren't honest when it came to the study of law and more importantly, our job opportunities. There was one law professor who was a shining light because he told it like it was and was just up front and honest with people. His name is Bernie Corr. I don't mind the C+ in Civil Procedure because he told us that some of us were getting that grade and I did better with him in two other classes.


History has shown that I love people who are upfront and honest about things and I show less love for those who hide the ball.

When it came time to a Bankruptcy seminar course, he told us that any changes in bankruptcy are a boon to bankruptcy law and was insisting that many of these changes might have to do with making money for bankruptcy attorneys.


Every 6-7 years every retirement plan has to be restated into a new plan document and every few years, there needs to be ancillary amendments. I admit that I steal professor Corr's line that all these amendments and restatements are to keep ERISA attorneys like me employed.  Seriously, retirement plan laws change and plans have to be amended to reflect that.


For the past 10 years, there has been a host of plan restatements and ancillary amendments that have been required for all retirement plan sponsors. There have been so many ancillary amendments, that even I have to keep a full checklist of what was done. Plan sponsors are in worse shape because many don't have all the ancillary amendments (whether they were done or nor and whether they were actually signed or not) and the Internal Revenue Service (IRS) knows that especially when it comes to plan audits. Not having all the required plan amendments and restatements is an excellent way for the IRS to make a few shekels on penalties when auditing a plan.


So it's a good idea for a plan sponsor to take inventory of their plan documents and amendments to make sure they have a set that are up to date and correctly dated. If not, a submission to the IRS' voluntary compliance program beats getting penalized on an audit because it costs a lot less.

I owe it all to you, my readership.  
I'm the guy who doesn't win popularity contests and I've had bosses who just didn't see it the way I saw how things were changing in the retirement plan industry and the legal industry. So I'm a bit overwhelmed that I was named #73 on the Top 100 Most Influential People in 401(k) by I guess this one is for the underdogs and for the talented law firm associates with managing attorneys who couldn't see talent if it was right in front of their face.

Seriously, I owe this recognition to all of you, my faithful readers. You can write great content with many allusions to Caddyshack and the Shawshank Redemption, but it means nothing if no one reads it. I knew when you write great stuff and no one reads it from my time in college and that certain law firm, so it's all because of readers like you.

This recognition won't go to my head because I don't have a big enough ego because I don't take myself too seriously (you know if you read my writing). I just want to point out that there is nothing wonderful about me. I'm just a guy who thought he could start a national retirement plan law practice based on social media and developing content that would develop relationships with clients, third party administrators, and financial advisors. I always thought that most retirement plan marketing wasn't good and TPAs and financial advisors could use my articles to develop their book of business and that was going to be the door opener for me to develop relationships with people who could refer me business. This wasn't brain surgery; it's human nature to understand that if you scratch someone's back, they will scratch yours. It was all about developing a connection and it has been a thrill to be able to connect with readers like you through this blog, all the articles on, and all the stuff on LinkedIn/Twitter/Facebook.

So all I can say it's all about making a connection and I hope to continue to connect with you.

Plus this also a great plug for my Kindle e-book coming soon, "How To Succeed in the 401(k) Plan Business".


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ary Rosenbaum, The Rosenbaum Law Firm P.C. | Attorney Advertising

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Ary Rosenbaum

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