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Rescued! 401k Plan Traps Business Owners Must Avoid and Fix

Rescued! 401k Plan Traps Business Owners Must Avoid and Fix

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Rescued! 401k Plan Traps Business Owners Must Avoid and Fix

330 pages
10 hours
Jul 15, 2015


Rescued! 401k Plan Traps Business Owners Must Avoid and Fix written by Andrew Dickens is a comprehensive resource and guide for anyone who works with 401k plans. The book covers a wide range of topics including: plan design; legal issues; fiduciary responsibilities; working with vendors; the benefits and problems associated with being a sponsor of a 401k plan. Andrew Dickens is widely known in the industry and an expert in the area of 401k plans.

Jul 15, 2015

Despre autor

Andrew Dickens author of Rescued! 401k Retirement Plan Traps Business Owners Must Avoid and Fix,” is widely known as an authority on defined contribution planning and Employee Retirement Income Security Act (ERISA) fiduciary matters. His credentials include Florida insurance licenses 214 and 240, and securities licenses series 7 and 66. Before joining Summit Asset Protection Group, Andrew worked with John Hancock and Signator Investors, Inc. where he focused on retirement planning, business planning, and compensation. Andrew’s passion for integrating those areas in order to produce best possible outcomes and apply them for the benefit of clients make him an excellent advisor. Andrew is a native Floridian, born and raised on the east coast of Florida. He and his wife Thelma live in Deland with their two daughters. --------------------------------------------------------------------------------

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Rescued! 401k Plan Traps Business Owners Must Avoid and Fix - Andrew Dickens


401(k) Plan Traps

Business Owners

Must Avoid and Fix

by Andrew Dickens

COPYRIGHT © 2015 Investors Advocate, LLC


ISBN: 978-0-9907906-5-5

All rights reserved. No part of this publication may be reproduced or transmitted in any other form or for any means, electronic or mechanical, including photocopy, recording or any information storage system, without written permission of the copyright holder.

Smashwords Edition, License Notes

This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to your favorite ebook retailer and purchase your own copy. Thank you for respecting the hard work of this author.









The Concept of Retirement

Retirement Income Sources

Social Security

The Birth of the Pension Plan

The Death of the Pension Plan

The Employee Retirement Income Security Act of 1974

The Gap

The Workers’ Savings Options

How Much Should We Save?

The Disconnect From Reality

The Employer Sponsored Retirement Plan

Why Should I Offer a Retirement Plan?

Questions to Ask Yourself Prior to Sponsoring a Plan

Qualified and Non-Qualified Plans

ERISA and Title I

Warning – Unintended Consequences

The Six Core Elements of a Successful Retirement Plan



Types of Plans

Defined Benefit Plans

Defined Contribution Plans

Hybrid Plans

The Power of Proper Plan Design

Participant Directed Accounts vs. Trustee Directed Accounts

Investment Platforms

Insurance Platforms

Net Asset Value (NAV) Platforms



The Confusion

The Common Law Fiduciary Defined

Plans Covered By ERISA Fiduciary Rules

Holding You Accountable: The Regulating Agencies

The ERISA Fiduciary

Non-Fiduciary (Settlor) vs. Fiduciary Acts

Allocating and Delegating Fiduciary Responsibilities

The Core ERISA Fiduciary Duties

Maintaining Transparency: The Disclosure Requirements

Prohibited Transactions: A Fiduciary No-No

Common Prohibited Transactions

Consequences of Breaching Your Fiduciary Duty

I Messed Up, What Should I Do Now?

Best Practices



The Confusion

The Plan Sponsor

Named Fiduciaries in the Plan Documents

The Plan Administrator

The Trustee

Directed Trustees

Discretionary Trustees

The Custodian

The Investment Advisor/Manager

The Record Keeper

The Third Party Administrator

The 3(16) Administrator

The Independent Auditor

The ERISA Consultant

Securities Brokers



The Basic Fiduciary Duty Revisited

A Brave New World: 408(b)2 Service Provider Fee Disclosures

Fiduciary Responsibilities under 408(b)2

Determining What Services Are Necessary

Evaluating Contracts for Reasonableness

Determining Reasonableness of Expenses

Fee Analysis

Fee Basics

The DOL’s Model Disclosure

How Non-Fiduciary Service Providers Are Compensated

The FREE Service Provider

Revenue Sharing

How Fiduciary Service Providers Are Compensated

Negotiating with Service Providers

ERISA Budget Accounts

Hidden Costs

Fiduciary’s Reliance on Proposal Data

Monitoring Service Providers

Fee Policy Statements



ERISA’s Requirements

Who Is Responsible?

Investment Policy

Investment Policy Statements

Selecting Plan Investments

Active vs. Passive Investment Strategies

Standard Plan Investments

Unitized Investment Considerations

Self-Directed Brokerage Accounts

Non-Standard Plan Investments

Monitoring Plan Investments

Reducing Fiduciary Liability

Participant Direction and ERISA 404(c)

Default Investments and Qualified Default Investment Alternatives



IRS Administrative Requirements

The Plan Document

The TPA Function

Highly Compensated and Key Employees

Eligibility, Participation and Vesting

Managing Contributions

How to Deal With Mistakes Before They Deal With You

DOL Administrative Requirements

Reporting Requirements

Disclosure Requirements

Blackout Notices

Foreign Language Requirements

Distribution Rules

The New Participant Disclosure Rules

Dealing with Prohibited Transactions: DFVCP and VFCP

Dealing with Regulatory Audits

Best Practices



Why Health and Performance Matters

Measuring Health and Performance

Setting Annual Plan Goals

Driving Plan Performance

Getting Employees to Retirement by Improving Participant Outcomes

Increasing Your Ability to Contribute: Auto Enrollment and Auto Escalation

Demonstrating Value: The Participant Experience

Reducing the Risk of Poor Participant Investment Decisions with Education

Education Policy Statements

Managing Plan Leakage



In-Service Withdrawals




Getting the Benefits of Good Plan Operation and Governance

The Valued Advisor






This publication contains the author’s opinions and is designed to provide accurate and authoritative information concerning Company Sponsored Retirement Plans. It is published with the understanding and intent that neither the author nor the publisher are in any manner offering accounting, tax, legal, financial planning or investment advice or any other form of professional services. The accounting, tax, legal, financial planning and investment information presented in this publication have been checked with sources believed to be reliable. However, all material in this publication may be affected by changes in the laws or in the interpretations of such laws since the manuscript for this publication was completed. For these reasons the accuracy and/or completeness of such information and the opinions based thereon are subject to change at any time. In addition, state and local laws or procedural rules may have a material impact on the general recommendations made by the author and the strategies outlined in this publication may not be suitable for specific legal entities or individuals. The author and publisher expressly disclaim any responsibility for any loss incurred as a result of any actions, investments or planning decisions made by the reader. The reader must seek the services of appropriate licensed and qualified professionals to obtain current and accurate accounting, tax, legal, financial planning and investment advice.

To ensure compliance with the requirements imposed by IRS Circular 230, we inform you that (i) this written advice was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer, (ii) this written advice was written to support the promotion or marketing of the transaction(s) or matter(s) addressed in the written advice; and (iii) the taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.


Government regulations are increasing in number and their liberal (ab)use applied to business owners. While discussing the risks inherent in Qualified Retirement Plans (QRPs) -- as those in the industry describe 401(k), 403(b), 401(h), 412(i) parts of the Internal Revenue Service (IRS) code, and more -- with a prominent attorney whose firm may have been at risk for violating conflict of interest rules in its own QRP, he dismissed the risks as only theoretical.

Not long afterward, on February 19, 2011, the front page of the Times and the Wall Street Journal described that the Supreme Court now made it a reality to be able to sue your employer sponsored QRP. What was once theoretical, now was reality.

The Department of Labor (DOL) has the capacity to attach the full net worth of the QRP sponsor, also known as the business owner. And it is highly likely the DOL can and will pierce any asset protection or estate planning or business planning veil too. There is no place to hide from them.

Some of the most respected and well-known companies were recently sued, were forced to disgorge large amounts of cash. Forbes on August 15, 2014 ran an article entitled Why your 401(k) is Worth Suing Over.

That is why I encouraged Andrew Dickens to write this book. He is clearly ahead of the curve as one of America’s leading authorities on retirement plans and how dysfunctional and dangerous they may be to business owners of this great land. And he provides real solutions to protect you and your employee-plan participants.

That is why I encourage you to peruse this book for the highlights. This trickle down regulation and lawsuit is probably coming to a business near you. Don’t get caught in the snare. Andrew outlines the problems and the solutions.

Life gets ever more complicated. This book brings some simplification without being simplistic. It can help you avoid the problems, and reduce the liability. And help you make more money at the same time.

Happy Planning,

Mitch Levin, MD, CAPP, CWPP CEO Summit Wealth Partners, Inc.


In just the last few years, some of the largest investment companies and vendors in the retirement plan industry have been sued by their own employees for breach of fiduciary responsibility with regards to their own retirement plans and investments. (Brown, Andy. (2014). Chefs Who Don’t Eat Their Own Cooking. Retrieved from Brown Wealth Management, LLC: www.brownwm.com/chefs-dont-eat-cooking/) These are the very same companies you might entrust to service your own plans. Accusations typically revolve around excessive fees paid by participants, conflicted or poor investment options, employer stock, and other areas of mismanagement or failures of oversight. (The Oyez Project. (2009). LARUE v. DEWOLFF, BOBERG & ASSOCIATES, INC. Retrieved from The Oyez Project at IIT Chicago-Kent College of Law: www.oyez.org/cases/2000-2009/2007/2007_06_856)

The risk of both litigation and regulatory enforcement action is greater than even before. You need to read this book because it has already happened to some of the expert companies who service the industry, and thus it can happen to you. And thanks to renewed efforts by government regulators to enforce the Affordable Care Act, the number of auditors in this space is greater than ever before and they are looking for violations in both healthcare and retirement plans.

This book was written to show you how to lower your costs, improve management and performance, and what to look for in experts to assist you along the way. We will jump start your understanding of what you need to know to run a cost effective, properly managed retirement plan while minimizing your liability exposure and keeping you under the radar of the auditors. The ultimate goal is to have a properly managed, effective plan that provides a valuable benefit for your employees and keeps you out of the crosshairs of government regulators and ambitious attorneys.

I wrote this book for you because experience has repeatedly demonstrated to me that most employers understand very little about what it means to sponsor a retirement plan, and consequently most of the time they don’t come close to getting it right. The proof is in the pudding: over 70% of plans audited by the Department of Labor are found to have violations that result in fines, restitution, or both and the financial consequences are very often paid personally by the individual(s) responsible for that aspect of the plan.

While risks certainly exist as in any venture, this should not deter you in offering these plans to your employees. In fact, the risk your employees face of not having enough money saved to replace a portion of their income significant enough to maintain their standard of living are many times greater than the risk you face of being fined or sued over the retirement plan. Tax efficient savings options for employees are minimal in absence of a company sponsored retirement plan, and helping your employees get to retirement comfortably will increase your productivity while decreasing the expenses and liabilities associated with an aging workforce that won’t retire because they can’t retire.

A properly managed retirement plan with good design, effective education, and prudent back-end policies, processes and procedures will almost assuredly provide a valuable recruiting and retention tool while minimizing the risk of litigation or regulatory enforcement. Despite best intentions, too many retirement plan sponsors are not equipped with the knowledge or support to maximize efficiencies and synergies while minimizing liabilities. With this book, I hope to elevate your knowledge and put you in a position to manage your plan with the best practices in the industry.

My goal in writing this is to provide the small business owner with a base of knowledge so that you can competently engage other service providers and know that everyone is speaking the same language. You will get a clear, concise, and uncomplicated explanation of what your responsibilities are to a retirement plan as the sponsoring employer.

We will encompass both entry level material as well as more complex subjects, with good substance and actionable items to get you doing what the best managed plans in the business are doing. Each section is dedicated to a specific area of plan governance that is critical to understand yet often misunderstood.

At the beginning of selected sections, I will relate an experience that correlates to the subject matter (names are omitted and relevant information has been altered to protect the identities of the subjects). I’m going to use as little industry jargon as I can, and whenever I can’t I’ll try to explain before I use it. I’m also going to try to leave out much of the legalese associated with this topic but retirement plans are governed by a set of laws that in some opinions harbor the strictest and highest standards of any set of laws in the entire country; so some cursory immersion into legal references will be inevitable.

This book is designed for use by sole owners, partners, boards, and committees; essentially any entity offering or considering offering a defined contribution (401(k)) or defined benefit (pension) plan for their owners and employees will find value in this book. However this is not meant to be the comprehensive, all-encompassing guide requiring several thousand pages. Instead this is something you will be able to read in a couple of days at your convenience.

Unless the plan’s sponsoring employer is an expert in plan governance, fiduciary requirements, and the nuances of the law, it is critical to have a competent, trusted advisor and/or legal counsel to assist the sponsoring employer with understanding the roles and responsibilities of retirement plan management. Many advisors, agents, brokers and CPAs only dabble in retirement plans incidentally to the course of their other business. We continue to see plans that are severely underserved by these professionals who receive compensation from the plan while providing very little effort supporting the plan sponsor needs, and in some cases giving just plain bad advice, if any at all. I’ll speak more on this at the end of the book.

If you have gotten this far, you should pat yourself on the back. This is not the type of reading material that most people are going to casually pick up. Most likely you’ve had an experience, or know someone who has, that’s taken you down the road of exploring whether what you are doing is right, how to correct the things that need to be fixed, and what can happen if you ignore it.

I will make you three promises:

1. I’m writing this book with the interests of the employer at heart;

2. I’m going to try and make this as light a read as possible;

3. And I guarantee you’ll find at least several actionable items that will help drive your plan’s performance and protect you in the process.

And I’ll make every effort to be available to answer your questions to the best of my time and ability.

Finally, this is the first edition of this book. As time passes and rules changes, I’ll keep updating as need be. With that being said, the information contained herein should not be taken as legal, tax or accounting advice. Your particular facts and circumstances may affect any action or outcome, so please consult with an appropriate professional before acting on any of the information in this publication.

And finally, if you want to contact me for any reason, from just a question to needing genuine assistance, you can reach me at the following:

• Email: adickens@mysummitwealth.com

• Phone: (407) 656-2252 x1000

• Mail: 800 N. Magnolia Ave. #105 Orlando, FL 32803




I’m relating this story because it made such an impression on me that it eventually changed the entire focus of my business, and made me as committed as I am today to this subject.

My first year in this business I received a call from Jim, an existing client of our firm, requesting a review of his investments. I had previewed his accounts, (formerly the responsibility of another advisor who had recently taken an opportunity at a competitor) and noticed his age, totality of his portfolio, and the notes left by the previous advisor relating to his retirement objectives. Jim was a retired business owner and I noticed immediately that his portfolio was relatively small considering these factors. But like many other clients, I suspected that he had not been entirely forthcoming with his previous advisor regarding all of his assets.

Jim was a country boy; an elderly gentleman with southern manners and hospitality. His wife Theresa was a dedicated mother (now grandmother) and had never worked outside the home. After spending a few minutes getting to know each other, I inquired as to his previous occupation. He was the former sole owner of a commercial transportation company, and had been retired for about ten years.

When I asked him about his exit from the business, I learned that he had suffered a life changing medical event that forced him into retirement. This event cost him a substantial amount of after tax savings he had accumulated due to inadequate medical coverage and other issues with the health insurance provider. Jim was completely unprepared to exit his business, but acting on the best instructions from his doctors he decided it was time to hang it up.

Like many business owners, the majority of his net worth was tied up in the business. Jim was unprepared to sell his business and was now confronted with the need to sell it quickly. Despite the fact that an asset sale was a very reasonable means to exit, he was committed to his many long standing employees and didn’t want to see them suddenly unemployed. So he

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