Crypto in Retirement Plans? Come on…..

  They say that if you follow the history of baseball that it reflects what’s happening in America.  It’s funny, no one ever says anything like that about the retirement plan industry, but then again, most people don’t even know that retirement plans are an industry! I can make a case that retirement plans do, in fact, have a broader tie in to what’s happening in the country at large. Today, we have more women and minorities working in our space and many industry groups have formed to promote equality in our industry. Similarly, just as Environmental and Social change have become forefront, ESG funds have also become topical in retirement plans. So, like baseball, retirement plans can also be used as a mirror reflection of what’s happening in the country around us.

 

If the above is my thesis, the next part is another example which is Cryptocurrency (Crypto) in retirement plans???  So, yes, just as Bitcoin and all the other varieties are becoming more and more mainstream, naturally, people who view these as investable opportunities want them to be available where their money is, which for a lot of people is in retirement plans. Within the last few years, there has been a small number of very noisy providers responding to this demand which has now “forced” the Employee Benefits Security Administration (EBSA), an agency inside of the Department of Labor to take a position on Crypto as a potential investment for retirement plans. The result, Compliance Assistance Release 2022-01 in March of this year.

The reader can read all about it in the above link.  If we had to summarize what we see in this C.A.R. it’s basically a cautionary release. There’s not a lot of new ideas in there. EBSA Deputy Assistant Secretary for Program Operations, Tim Hauser has stated publicly that the release is more about the way these types of investments are being marketed, “I mean the thing that that most concerned us was, you know, fairly aggressive marketing...…of these investments to 401K plans at this moment”.

                

Aggressive Marketers Beware!!!!

It is also reminding Plan Sponsors of one of the primary fiduciary duties, the Prudent Person Rule of ERISA. In his interview with Brian Graff, CEO of the American Retirement Association on June 22, 2022, he reiterated that the obligation of Prudence is a Plan Fiduciaries job and that fiduciaries will need to be prepared to justify any decision to include Crypto in a plan saying “I think it is fair to say that as time goes by I would expect telling people that the issue are Prudence in this and this context is very very real and you need to take it very seriously and think hard about what you're doing here. That means, full analysis weighing all risks such as volatility, recordkeeping concerns and more."

This issue of prudence is very real and like in any other investment decision dealing with retirement plan assets, there isn’t an actual specific set of rules on what will pass muster and what won’t. It’s all facts and circumstances based. This is no different than what they’ve said previously with other “newer” investment ideas such as Private Equity. So, the question for plan fiduciaries is whether participant demand will be sufficient to consider using these funds and then, whether a prudent analysis of Crypto as a potential investment will yield a decision to add them to the plan and then, of course which one??

Let’s not forget that the prudent selection is not a one-time decision, the duty to monitor would also hold. Final thought, plan sponsors may choose to “punt” this plan decision by stewarding participants to use a Self-Directed Brokerage Account (SDBA) as the place to buy these instruments. However, a note of caution here as well. EBSA’s Field Assistance Bulletin 2012 - 02r says that SDBAs are still subject to ERISA 402(a)’s Fiduciary Standard’s of care. This means that the SDBA provider needs to be prudently selected and reasonable boundaries need to be built into the provider to restrict access to imprudent investments (ex. Municipal Securities, Level 2 options, etc.).

OUR TAKE: Over time Crypto may prove to be a viable new asset class OR it may prove to be a fad. I’ve even heard notions of Crypto or its’ underlying technology, blockchain technology, becoming a utility. However, it’s got a lot of uncertainty surrounding it and we would have a very difficult time as plan fiduciaries ourselves in advising a client that they’d be prudent to add to a menu of choices offered in a 401(k) Plan. If you have thoughts on this piece or want to discuss the topic further, please reach out to us! 

 

 

 

 

 

 

 

Jason Grantz is the Managing Director of Institutional Retirement Plans at Integrated Pension Specialists and a Retirement Plan Specialist at Integrated Wealth Concepts.  He can be reached at (978) 847-0140 ext. 820.

If You're the Smartest Person in the Room, You're in the Wrong Room!

This title is one of my favorite quotes that is so very wise.  It was originally said by a noted academic, Dr. David Weinberger.  By applying this adage to my professional life, I've almost universally been the better for it.  If it weren't for this philosophy, I never would have tried to write papers, blogs and the like, and thus would never have decided to create this blog.  I've recently realized, that this blog is really the only independent place where I can document all of the work I've done in my career.  So, here are a few of my notable papers in one place, the better ones co-written by someone who is most definitely the smartest person in my two person rooms, HA!  Hope you enjoy these.

Retirement Success: A Surprising look into the Factors that Drive Positive Outcomes - This is the very first paper I published in my professional career, originally published in the Summer edition of the ASPPA Journal in 2011.  Interestingly, this piece has been a weight baring beam in my career, a foundational notion for everything I've done since.  The smart co-author on this gem is David Blanchett (now head of Retirement Research at Morningstar) who took my original question and did 100% of the math! - September 1, 2011

Deconstructing the Fiduciary Models: 3(38) vs. Discretionary Trustee - In this piece, my very smart associate, Mike Samford and I try to tackle a highly nuanced area of ERISA fiduciary service, taking discretion over plan investments.  While I would change some of what I've written here nearly ten years later, most of this still holds.   - July 11, 2012

Third Party Fiduciaries; Myth and Reality- Occasionally, I managed enough nerve to write solo, and invariably the result never as good as when I've written with a partner.  This is my first ever solo piece, originally self published but picked up by Retirementsolutionsnow.com. - June - 2013 (Orig. Jan. 17, 2013)

Retirement Income—In-Plan vs. Out-of-Plan Solutions, Which Is Better?

Retirement Income - In Plan vs Out-of-Plan Solutions, Which Is Better?  - This is still today (in 2021) a hot topic, annuities in retirement plans.  We had this published in the Journal of Pension Benefits and it explores Retirement Income solutions, as they exist within 401(k) plans, whether individuals would be served better with those solutions or out-of-plan solutions and provides ideas for how to adequately deliver retirement income for retired Americans.  The 'smart' on this one was my co-author, Dr. Greg Kasten. - Feb. 1, 2013.

How 401k Advisors can Effectively Offer 316 Services - Here's a piece I authored in 401(k) Specialist which discusses the 'at the time' new spate of administrative fiduciary services and a model for retirement plan advisors to gain a competitive advantage.  No co-author on this one, AND you can tell! - June 14, 2016

- Jason Grantz, QPA, QKC, QKA, AIFA

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Where has the all the content gone?

I'd like to apologize for the lack of consistent content on this blog to those who read it often.  It's been an extremely busy time for me professionally, but the blog post ideas haven't gone away, they've just been getting posted elsewhere!  About 18 months ago or so, my firm, Unified Trust launched a blog and I've been one of the authors populating the content.  Below you can find a link to the blog and a link specifically to the content authored by myself.  Thanks for being patient.  I will try to post here more frequently.

http://blog.unifiedtrust.com/index.php/author/jason-grantzunifiedtrust-com/

http://blog.unifiedtrust.com/

Best - Jason Grantz

"The Government Does Not Do It Better" - Brian Graff, and he's dead on right about that!

Over the last few weeks I've been doing a bit of thinking regarding the state of the retirement plan industry, where it is now, where it's heading.  A lot of the noise that's out there right now seems to be centered around retirement plan litigation, mainly the spate of recent excessive fee lawsuits that have settled and the many more recently filed.  Further still is more negative energy and interest surrounding the forthcoming finalized rules for the Conflict of Interest Rule (aka the new fiduciary definition).  While these topics are important and certainly bear observation and reaction as they play out, to me, the biggest threat on the horizon is a bit closer to home, at the state level.

While the industry is looking left at all this fee and fiduciary stuff, the DOL was on the right, quietly creating a major threat to the private sector by giving a significant advantage to publicly offered (by the state.....so far) employer facilitated retirement plans.  This isn't new stuff, it's been percolating through the system for quite some time.  It gained steam, however, over the summer.  In May, Senate Democrats put pressure on the Obama administration to clarify some legal issues surrounding state run retirement programs.  In particular was whether or not these new programs would be covered by or run afoul of ERISA.  In July, the president responded directing the DOL to facilitate the implementation of state laws protecting the states.  Finally, on November 16th, the DOL released comprehensive guidance creating a road map to the creation of state-run private sector retirement programs that would have different (frankly better) rules than that of the private sector.  Many states have already started down the path to creating these.

These new rules have created a safe harbor for payroll deducted IRA programs run through the state without offering an equal safe harbor for the private sector.  It also allows for the states to proceed with creating an "Open MEP" type program while simultaneously not providing similar guidance for the private sector.  This will foster extreme competition to the private sector in the next few years from the states, and in my opinion, also opens the door for the federal government to follow suit with a national program similar to what was done with health care.  This is the real threat to the private sector retirement system, NOT the Conflict of Interest Rule which is mainly going to be an inconvenience that we'll all figure out how to work with. 

Brian Graff wrote a great piece on it in the latest Plan Consultant Magazine.  It's a MUST-READ for anyone in the industry.  It's linked here.

The Government Does Not Do It Better

- Jason Grantz

TOP 75 Wholesalers in Defined Contribution

The cover story of the Spring issue of NAPA Net the Magazine highlights the Top 75 DC Wholesalers and what to expect in the future in our ever-changing, dynamic industry that, for better or worse, is getting tons of attention. We’re all going to be judged on participant outcomes — and wholesalers will play an integral part.  The list linked below.

http://www.napa-net.org/2014-top-wholesalers/

Somehow or another, I'm proud to say that I made this list!  When broken down into the sub-category of Recordkeeping wholesalers, it is a Top 25 distinction.  Needless to say, I feel honored and grateful to anyone who felt strongly enough about my service to vote for me.

Thank you - Jason

Fiduciaries, Know thy Duty!

Good article posted this AM on NAPA.net authored by John Lekel.  Within the article it cites a webinar that was conducted for NAPA in January presented by Dr. Greg Kasten of Unified Trust Company regarding fiduciary duty for retirement plan fiduciaries.  Within the webinar, Dr. Kasten offers a variety of good pointers on best practices and some warnings about what is being sold in the market vs. what clients think they are buying.  Here's a short list of best practices;
___
"Prudence is key, Kasten argued, in exercising fiduciary duty. He offered these pointers:
• consider what information is relevant to the decision;
• obtain the information;
• analyze the information;
• make a reasoned decision that other experts in similar situations would make; and
• document the decision"

Thanks John and thanks Dr. Kasten.

DOL - the 2014 Pipeline!

In case you missed it, recently the DOL published a list of initiatives for 2014.  It was written about in an article from Plan Adviser magazine, linked here.

http://www.planadviser.com/DOL_Issues_2014_Retirement_Plan_Pipeline.aspx

As a summary of this, here are the eight items on the DOL’s published agenda for 2014 that impact ERISA Retirement Plans (as opposed to IRAs, Health Plans, 457 plans or non-ERISA 403(b)s).

1.) Fiduciary Re-Definition – Targeting August 2014 – This will continue to be an argument.  NAPA and ASPPA are against fiduciary standard in its current form, which has (in their opinion) too many exceptions resulting in a “non-uniform, uniform fiduciary standard”.  An article on NAPA.net today indicates that the DOL is lobbying pretty hard to get this done this year.  Time will tell.  Article linked here:

http://www.napa-net.org/news/managing-a-practice/regulatory-compliance/perez-lobbying-congress-on-fiduciary-rule/?id=6661&tkn=940127217506af86e247cd&mqsc=E3713559&utm_source=WhatCountsEmail&utm_medium=NAPA_List+Napa-Net%20Daily&utm_campaign=NAPA%20Net%20Daily

  

2.) Lifetime Income Illustrations – Targeting August 2014 – DOL is still interpreting comments.  Seems like this idea has legs behind it despite some of the obvious deficiencies in the accuracy of calculations.

3.)  Review use of Brokerage Windows in Partic. Directed plans – This could be a big deal, and will be the one that I’m most interested in.  As many of us in the industry know and agree, the use of individual brokerage in plans has a TON of problems, hopefully they’ll make this restrictive enough that they will mainly go away.

a.       Explore whether and to what extent regulatory guidance on fiduciary requirements and safeguards for such arrangements are appropriate (b/c they could be problematic) – RFI expected in April of 2014

4.)  408(b)(2) amendments coming requiring providers to provide a guide to understanding or a similar tool to help sponsors, especially small ones to understand this guidance – notice of proposed rule making (NPRM) in January – Great idea, but I suspect that the tools created will be too difficult for clients to use, or some other such problem so that most providers can continue to hoodwink the clients on what they are truly paying

5.)    Reduction in Safe Harbor afforded to selection of Annuity option in individual account plans to only cover the idea that the provider has the ability to make lifetime payments (not as to quality of annuity or provider) – October 2014

6.)    DB funding notice finalizing – March 2014

7.)    Amendment to Participant Disclosures surrounding Qualifed Default Investment Alternatives and Target Date funds under 404a-5 – looking for more specificity – March 2014 – More written disclosure that will go unread and not understood by participants.  This is a huge waste of energy and resources.

8.)    QTA – Qualified Termination Administrator – Looking to create to deal w. issue of abandoned plans, similar to using a bankruptcy trustee – April 2014 for final rule
 

Populism Sans Facts - Reposting

Ray Harmon of ASPPA does a nice job of taking it to President Obama for his offhanded, negative slanting remarks about the Retirement system.  Good job Ray - Well worth the read.

http://www.napa-net.org/news/technical-competence/populism-sans-facts/?id=6661&tkn=940127217506af86e247cd&mqsc=E3583188&utm_source=WhatCountsEmail&utm_medium=NAPA_List+Napa-Net%20Daily&utm_campaign=NAPA%20Net%20Daily

Fee Disclosure: Enforcement Coming, no surprise

Fee Disclosure has been discussed ad nauseum on this blog in past entries.  Here we are on the approximate one-year anniversary of 408(b)-2 and an article comes out discussing how the DOL intends to make a concerted effort to enforce excessive fee cases, using the disclosures as the primary supporting documentation.  See below for the full article.


http://www.napa-net.org/news/managing-a-practice/regulatory-compliance/philadelphia-region-of-the-ebsa-to-focus-on-fees-in-401k-plan-audits/?id=4553&tkn=375651996506af1d83e2f5&mqsc=E3576487&utm_source=WhatCountsEmail&utm_medium=NAPA_List+Napa-Net%20Daily&utm_campaign=NAPA%20Net%20Daily

And they were kind enough to supply a link to the list of items required in the event of a DOL audit.

http://www.asppa.org/document-vault/pdfs/GAC/2013/dolreq.aspx

My thoughts are that the full impact of the fee disclosure rules from last year have yet to be felt, perhaps this is a sign of that impact en route.

The Tax Man is a kid in a candy store - 401(k) Savings threats

On this blog we've tried to inform the readership about the very immediate threats to the United States' primary savings vehicle, the 401(k) Plan.  See previous postings on the 'Save My 401(k)' campaign. 

Recently Fox News had a brief piece produced on The Willis Report, linked below.

http://www.youtube.com/watch?feature=player_embedded&v=hPDjLIzcD2U

In the report you can hear Judy Miller of ASPPA and Jonathan Hoenig of Capitalist Pig Asset Management discuss one of the proposed Tax Reform's attacking 401(k) plans, the $3m lifetime benefit cap.  I think they do a good job of highlighting that by capping savings for the wealthy, that there will be a trickle down negative impact on the working middle class as well.  Bottom line, ANY program engineered to dis-incentivize savings stated differently is to incentivize dependency on government. 

We don't take political stances here on this blog, but any program engineered to create dependency on ANY other institution feels wrong, and is very dangerous.  The private sector can, and has, successfully engineered a savings system that works very well.  If anything, politician's should be looking for ways to increase incentives to save. 

Check the video, become aware, act!

Save My 401(k) - Part 3, Lots of Negativity out there

If you haven't had a chance to see the recent PBC special, ‘Frontline, The Retirement Gamble’, it is worth watching.  It's a little scary in its depiction of the retirement industry.  It’s gotten a lot of industry attention.  I suggest you take a look, if you get a moment.  Linked here. 

 

http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/

 
 

After watching it, please think about this excerpt from Phyllis Borzi, assistant secretary of labor in charge of EBSA (DOL enforcement).  Look at the choice of words she uses highlighted below in yellow.  Not new rhetoric, but definitely louder now than ever.  You can sign up for the DOL newsletter at DOL.GOV.

 

Take Three:

Fresh From 'Frontline,' Borzi on Retirement

Phyllis C. Borzi is the assistant secretary of labor in charge of the Employee Benefits Security Administration, which helps protect the retirement security of millions of America's workers. This week, she appeared in the PBS Frontline documentary, "The Retirement Gamble." We asked her three questions about retirement security in America today.

Frontline says that there's a retirement crisis. Is this true? I think the Frontline episode was right to point out that there are significant challenges that workers face in saving for retirement. We used to have a system of predominantly traditional pension plans, which are professionally managed and invested, and funded by employers. Now it is a defined contribution system, which requires workers to take on more responsibility not only to make sure that they save enough, but also to invest the right way. Part of our job at EBSA is to make sure workers are getting the information that they need, such as information on the fees that they are paying, so that those challenges aren't insurmountable.

What can the average person do to help ensure a secure retirement? There are a lot of steps you can take. First, make sure you are saving now, no matter where you are in your career, and maximize your employer match if you have one. Also, pay attention to the fees you're being charged and make sure you read all of the communications that you receive from your plan. If you have an investment adviser, make sure you're asking them questions to ensure that the person is a "fiduciary," that is, somebody legally required to put your financial interests ahead of their own. We've developed a fact sheet to help you do just that.

Can you tell us more about what the Department of Labor is doing to help? One of the challenges that Frontline identified was that investment advisers and brokers may be encouraging you to invest in products that financially benefit them — and may not be the best option for you. We don't think they should be able to do that, so we're working on a proposed rule to address these conflicts of interest and make sure that when you get advice, it's in your best interest, not your adviser's.

• Read the Fiduciary Fact Sheet
• Read the EBSA Newsletter

Added to original Post - Great synopsis on the one-hour show written by Nevin Adams. Linked below.
http://www.napa-net.org/news/managing-a-practice/industry-trends-and-research/gamble-gambit/?id=6661&tkn=940127217506af86e247cd&mqsc=E3514172&utm_source=WhatCountsEmail&utm_medium=NAPA_List+Napa-Net%20Daily&utm_campaign=NAPA%20Net%20Daily