Charles A. Krugel

New 401k Rules to Ramp Up 401k Fee Litigation & Outsouring to 3rd Party Fiduciaries

charlesakrugel — Thu, 10 May 2012 16:48:20 +0000

These are 2 guest posts concerning the coming changes in 401k administration rules from Joshua E. Betancourt at Quantum Capital Investments.

How Business Owners and Corporations are at Risk Due to Recent 401k Regulation

It has been 36 years since the passage of ERISA (Employment Retirement Income Security Act) and as a result there has been a dramatic migration from traditional pension plans to 401k plans. This move to 401ks from traditional pensions has shifted the investment risk and savings obligations to Plan Participants (employees). But what Plan Sponsors (companies that provide 401k plans to employees) don’t know is that the shift of investment risk and savings obligations to Plan Participants has not resulted in a change of legal responsibility. Recent regulatory changes stemming from the Frank-Dodd Act passed by Congress has actually expanded the definition of “Plan Fiduciary” (Plan Sponsor).

As a result of recent regulation, Plan Sponsors will be required to know and understand all the fees both implicit and explicit within their 401k plans and also be required to begin disclosing these fees to all their Plan Participants. Even in a self-directed plan, it remains that the Plan Fiduciary (Plan Sponsor) has the ultimate legal responsibility to determine if plan fees are reasonable, regardless of who is making the investment decisions.

401k Fee Graph

To see enlarged image, click here: Cost drag of fees on 401k plans

401k Benchmarking

So how does a company (Plan Sponsor) find out whether the 401k plans fees are reasonable? In essence, Plan Sponsors must go thru the process of benchmarking their plan against other peer groups of the same size and similar industries in order to determine whether their existing plan fees are reasonable. Obviously, most companies do not have the resources or the technology to produce proper unbiased independent reports and demonstrate they went thru the correct benchmarking process. The best option for Plan Sponsors is to hire an independent 401k consultant to conduct the proper research and produce a detailed peer group and industry benchmark.

By not going thru a comprehensive benchmarking process, a Plan Sponsor runs the risk of not being in compliance with the Department of Labor’s ERISA requirement of Plan Fiduciary. Another significant potential threat is the Plan Sponsors cost of litigation from lawsuits brought on by the participants themselves when they discover the unreasonable fees in their 401k. Discovery of these fees by participants is only a matter of time since one of the new mandates is the requirement of Plan Sponsors to begin disclosing these very same fees by July 2012.

Outsourcing 401ks to a Fiduciary, The Next Big Thing

With Michael Chamberlain, Contributor

Outsourcing is the hiring of a consultant from outside the company to complete a task or provide a service that they are better suited to do then your own employees. Many small to mid sized plans are beginning to outsource 401(k) fiduciaries.

Companies outsource many services, including payroll, auditing, marketing, legal defense, building maintenance, HR services and advertising, to name but a few. The reasons for outsourcing generally include:

Cost savings
Better outcome
Cost savings
Increased productivity
Allows employees to do the things that they do best

Numerous business experts and consultants tout the benefits of outsourcing. “Do what you do best and outsource the rest,” says Tom Peters, management consultant extraordinaire. Former HUD Secretary Alphonso Jackson once stated, “When work can be done outside better than it can be done inside, we should do it.”

There is now a growing trend to outsource 401(k) services for many of the same reasons, but also because there are additional benefits in so doing, such as:

Reduced liability
Increased objectivity
Fewer conflicts of interest
Increased service level

As you ponder outsourcing 401(k) services, understand that there are differing levels of fiduciary protections to consider, from partial responsibility to total responsibility.

ERISA Section 3(21) Investment Fiduciary: These advisors assume “co-fiduciary” responsibility, and they accept that responsibility in writing. As a plan advisor, they can offer “objective” advice and recommendations to the business owners or board of directors who may make the actual decision as to selecting, monitoring and removing plan investments. Given the co-fiduciary aspect, the business owner or board of directors are still on the hook for investment responsibility, but at a minimum, they are reasonably assured that the advice they receive from the 3(21) advisor is prudent, objective and independent from other service providers.
ERISA Section 3(38) Investment Manager: These advisors also accept fiduciary responsibility, in writing, but they assume total responsibility and liability for the selection, monitoring and removal of investment options. Under this type of 401(k) outsourcing, the business owner, board of directors or any other fiduciaries cannot be held legally responsible or liable for investment decisions. The 3(38) advisor acts independently, and is not typically subject to conflicts of interest that might exist with advisors who represent the financial service providers to the plan.
ERISA Section 3(16) Fiduciary – This individual accepts total responsibility for the operation of the 401(k) plan, which includes the hiring of service providers, ensuring appropriate and timely filings, handling disclosure notices, etc. The 3(16) Fiduciary operates the plan, rather than the plan committee, business owner or board of directors. The 3(16), appoints a 3(38) Fiduciary to be responsible for the management of the plan’s investments. The only responsibility of the business owner or board of directors is to select and monitor the 3(16) Fiduciary.
Multiple Employer Plan (MEP) – A MEP is a plan operated by a 3(16) Fiduciary, who appoints a 3(38) Investment Manager, and two or more independent companies to participate in the MEP. An example would be a MEP sponsored by a Chamber of Commerce or a trade association, offering the MEP for the benefit of the member companies. For small companies, the MEP can be a significantly more efficient and cost effective mechanism when providing the benefits of a 401(k).

Part of the reason outsourcing is catching on in the 401(k) area is that ERISA’s “prudent expert rule” specifically states that the plan should outsource to independent experts if they themselves do not have the expertise, because it is ultimately in the plan participants’ benefit.

Large firms such as Google, Apple, Bank of America, Exxon and Microsoft might feel that they have the expertise on their staff to operate their 401(k) but having outside objective fiduciary guidance would only help as well.

About Joshua E. Betancourt

Joshua E. Betancourt is a 401k consultant at Quantum Capital Investments (Q C I), an Independent Registered Investment Advisor specializing in helping businesses benchmark their 401k plan and bring their plan into compliance. Joshua also assists in providing businesses access to lower cost investment options within company 401k plans and conducts onsite financial education to business executives and plan participants. Joshua is also a Registered Investment Advisor and investment manager. QCI is a Full Service Investment Advisory and FINRA registered.

For More Info Contact:
Joshua E. Betancourt
Quantum Capital Investments
Investments * 401k Services * Life & Health Insurance* Managed Futures
Direct Line: 312-544-9682
Email: joshua@quantumcapitalinvestments.com

5/17/12 Presentation @ the Small Business Development Center/Duman Entrepreneurship Center

charlesakrugel — Sat, 28 Apr 2012 20:51:48 +0000

On Thursday, May 17, I’ll be presenting a free seminar for small businesses on How Labor & Employment Law Impacts Small Businesses’ Bottom Line. This will be at the Jewish Vocational Services’ Illinois SBDC (Small Business Development Center)/Duman Entrepreneurship Center, 3:30PM-5:30PM at 216 West Jackson Blvd., 2nd Floor Training Room, Chicago. Like most of my presentations, this will be an open discussion with Q&A throughout. You can register to attend here. Here’s a description of the program:

Our labor & employment law system is a complex network of state, federal & local laws. It’s really difficult for small businesses to understand & relate to the agencies that enforce these laws. By understanding how our labor & employment laws regulate the workplace, a business owner or operator can save a great deal of money on legal expenses and time spent away from operations.

4 New Chuck Krugel Presentations & 3 New Boards of Directors & Advisory Board Appointments

charlesakrugel — Tue, 10 Apr 2012 19:25:49 +0000

I’ve got 3 new presentations that are upcoming & 1 that I did last week that’s worthy of mention. Plus, in the past few weeks, I joined a new board of directors & 2 advisory boards.

On 4/4/12, I did my 6th presentation for Illinois WorkNet of Northern Cook County, part of the Illinois Department of Commerce & Economic Opportunity & the Illinois Department of Employment Security. The presentation concerned the legal issues concerning candidate hiring & screening for businesses. Due to the audience’s questions, emphasis was placed on social media & the recent issues concerning Facebook, LinkedIn, etc. My handout for the presentation is here (PDF).

On Thursday, May 17, I’ll be presenting a seminar for small businesses on How Labor & Employment Law Impacts Small Businesses’ Bottom Line. This will be at the Jewish Vocational Services’ Illinois SBDC (Small Business Development Center)/Duman Entrepreneurship Center, 3:30PM-5:30PM at 216 West Jackson Blvd., 2nd Floor Training Room, Chicago. Like most of my presentations, this will be an open discussion with Q&A throughout. You can register to attend here. Here’s a description of the program:

Our labor & employment law system is a complex network of state, federal & local laws. It’s really difficult for small businesses to understand & relate to the agencies that enforce these laws. By understanding how our labor & employment laws regulate the workplace, a business owner or operator can save a great deal of money on legal expenses and time spent away from operations.

For the 2nd year in a row, I’ll be presenting at The Business Event, which is sponsored by Jewish B2B Networking & the Small Business Advocacy Council. This takes place on June 14th & is at the Lincolnwood Town Center 3333 West Touhy Ave., Lincolnwood, IL. The event runs all day. Approximately 5000 people are expected to attend. Similar to last year’s presentation, my presentation this year will focus on employee classification issues (i.e., independent contractor versus employee classfication) and wage and hour issues. My presentation is sponsored in part by Illinois WorkNet of Northern Cook County. Thanks to Mohammed Faheem, Director, & Deb Lawrence, Business Employer Services & Community Relations, for setting this up. More information, including time & registration is coming soon.

On Wednesday, July 18, from 3PM-4:30PM, I’ll be doing my 10th presentation for Chicago’s Department of Business Affairs. As usual, my seminar will focus on understanding labor & employment law & human resources from a business’ perspective. This is at Chicago’s City Hall, 121 N. LaSalle St., Department of Business Affairs, #801. If you’d like to register ahead of time, please contact Geralyn Catino @ 312-744-5504 or geralyn.catino@cityofchicago.org. Walk-ins are welcome too. Like past presentations, this will be open discussion & Q&A.

This month, I was elected to the board of directors of the Kelly Hall YMCA, part of the Y’s of Metropolitan Chicago. The Kelly Hall Y opened in January 2009 in Chicago’s West Humboldt Park neighborhood. This is a beautiful facility that provides day camp, parenting & health workshops, a technology center, senior activities & many other health, education & vocational services. More information is available here PDF & here.

Also, this month, I joined the Steering Committee (i.e., advisory board) for the Y of Metro Chicago’s Black & Latino Acheivers (BLA). Founded in 1971 at the Harlem New York Branch YMCA, this nationwide program fosters the academic, personal and career development of African-American and Latino youth enrolled in the 7th – 12th grades (ages 13-18) by focusing kids on career, college educations & scholarships.

Late last month, I was appointed to the Advisory Board & Executive Committee of Affiliated Healthcare Consultants (AHC). (AHC) is an
organization of like-minded, independent professionals from many different disciplines. AHC members provide unparalleled professional services to healthcare professionals and businesses. AHC was started a couple of years ago by Chicago attorney Richard Crane.

Podcast from My 3/14/12 Problem Employee Solutions Seminar

charlesakrugel — Sun, 08 Apr 2012 21:13:56 +0000

The podcast an MP3, about 1-hour long is here.

: 3/14/12 Webinar-How to Make Tough Decisions About Problem Employees

2 New Chuck Krugel Video & Audio Interviews

charlesakrugel — Wed, 28 Mar 2012 19:48:39 +0000

On 3/27/12, I was interviewed by First Business’ Angie Miles for their nationally syndicated morning broadcast. The subject of discussion is the recent issue of employers asking employees and job candidates for Facebook & other social media passwords & obtaining access to private information on social media. This has also been a recent topic of discussion in my LinkedIn group. The entire program is below or it can be accessed here. My few seconds of fame comes at the 8:00 minute mark of the program.

Essentially, most management side attorneys that I know & I think it’s wrong for employers to request this information because it’s the same as verbally asking employees or job candidates to disclose personal information about themselves in a job interview. It just isn’t necessary or appropriate, & it’s bad HR management. However, I don’t believe that legislatures should pass laws barring employer requests because our legal system is complicated enough as it is. Some lessons can be better taught & learned without a new law & the additional bureacracy created by a new law.

Also, on February 27, 2012, I was interviewed by Mike Boehler & Michele Rempel of the Linked Local Network. The interview is in 2 parts. The 1st part, about 3 minutes, is video & is on You Tube, the video embed is below too. The entire audio interview, about 30 minutes, is on LLN’s Blog Talk Radio program & is available here (MP3). The interviewe focused on my law practice, my views on labor & employment law & HR/HC management, the various boards of directors that I belong to & my online networking activities. Thanks to Mike, Michele & Fred McMurray for this opportunity.

http://www.youtube.com/watch?v=qVSMd9NK0RU