Harley Bjelland - Review Your Employee Benefits Regularly (D0618)

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To match with a licensed therapist today, go to Talkspace.com and enter promo code 80. Welcome to the Exit Coach Radio show, the show for baby boomer business owners who are looking for cutting edge information as they plan their 3 to 10 year business succession and exit. Every week we interview top professional advisors for their best tips, strategies, and precautions so you can be well planned. And don't miss. Our one minute exit coach tip of the day on exitcoachradio.com. And now here's your host, the exit coach Bill Black. Welcome back. Thanks so much for joining us. It's always fun to have good friends rejoin me on the show, and my next guest is Harley B Ellen from the ERISA law firm, and he's going to tell you what ERISA stands for in just a second. But Harley is a great guy. He He really is the premier ERISA attorney that I know of, and he represents companies regarding qualified retirement plans, health plans, and executive compensation plans, and those are plans that you put together for your key people, of course, but you know. One of the problems is if you are a trustee, if you have a 401k plan, you're probably signed as trustee. You should check because you might have some blind spot problems that you need to be ready for, and that's what Harley's going to talk about. Harley, thanks so much for joining us again. Good to talk with you. Yes, it is, and thank you for having me back and thank you for the kind words. So let's start off by telling telling everybody what what uh your firm does and what ERISA exactly stands for Harley. Well, I always tell the same joke. It's every ridiculous idea since Adam. But actually, ERISA is a a pretty comprehensive statute that regulates the relationship between employers and employees, and it also regulates income taxation, so tax deductions and income and things like that. So it's a pretty comprehensive statute, and it applies to really those those areas that I practice in qualified retirement plans. Uh, health and welfare benefit plans and executive comp and it has application and it regulates it. It tells you what you can and cannot do. So talking speaking of since Adam, how many years have you been working in this field? Well, I, I, I've, I've really done it since 1981, so it's uh coming up on 34 years, I guess that is my math's right. OK, so you, you, you've taken a look at all of these regulations. You've probably seen it all. Uh, what type of situations are you seeing, uh, people, uh, really come to you and say I wasn't aware of that this could happen? What, what are the biggest ahas people have? Well, you know, I, I this is the best thing about your show, Bill, because you know we we never do what I'm planning on talking about, but that's really a great question. The world is changing so differently now because the government really looks at these benefit plans so differently. I would say one of the surprise areas that people are getting involved in is, is audits either by the Internal Revenue Service or the United States Department of Labor, and it can be your qualified plan, your 401k plan, or it could be your health care plan. They're actually doing healthcare audits now. Um and certainly we we haven't seen as much activity in the non-qualified arena, but, but these are all areas where what the government's doing is it's really changed its focus. No longer are they auditing people like they do tax returns and try to get penalties and things like that. They're using them as a system to generate compliance. Uh, what I mean by that is that what they like to do is, is have a bunch of amnesty programs. And right now we have so many amnesty programs across the board on these areas where if you've You know, done your plan right and you're moving along and then all of a sudden you hit a blip in the road and you find out, wow, I didn't do that correctly. There's so many amnesty programs available out there where you can come in and say, you know what, I messed up. I'll pay a smaller sanction. Here you go. I'll fix it and then going forward I'll make sure I don't make that mistake again. And these are, these are across the board what I'm seeing most of and and I'd say over the last 6 to 8 months. OK, so they're they're trying to get people back into compliance and they're being kind about it. Um, what are, what are some of the big problems? I mean, it seems like, OK, these vendors set up these plans and, and I signed off on it. I thought I was done with it. What are some of the big problems that they're looking for? Well, it's, you know, and we've, we've had this discussion before. It's what I call a dumbed down business and and what I mean by that is that um most people don't like to spend $500 an hour on someone like myself to give them advice. They'll use the cheaper, freer source, which is usually from one of their vendors. And in doing that, what happens is the vendors aren't, you know, experienced in this. I mean, you know, myself, my qualifications, I think the best thing that separates me from every other benefits lower, that I know of is I've run big plants. I've been the businessman that's sitting at his desk trying to figure out how to do this stuff and and it makes me much more cognitive of, of the kinds of things that can happen and the kinds of risks that can happen because What what happens for the most part is, and I'll tell you across the board, most businesses don't have any idea what they should or should not do with respect to their 401k plans. They're relying almost exclusively on the advice of their third party administrator or their, you know, whoever they're using CPAs or whoever they're using to to operate their plans, and it creates, um, you know, an absolute reliance and and the the the the bad part about ERISA is that ERISA says if you go out and you hire a TPA, you go out and hire a CPA, you hire a lawyer like me. And they make a mistake, we don't really care. You're going to be responsible for it. So the, so the company is always responsible for deficiencies in operation, administration, all those different kinds of things. And, and, and it works very, very well because what they're really after is making sure that employees are getting the right benefits that they're being promised. And so you know we see so many compliance issues and I and and you know, most benefits lawyers will tell you this, you know, you get, I have almost 600 clients and 599 of them are out of compliance and it's not because they're bad or they're doing things wrong. It's this stuff is very, very complicated. It's hard to be correct all the time. Mhm. And uh when, when people, now some of these retirement plans, they're getting, they're getting to be pretty sizable. I mean, people have been putting into them for a number of years now, and average balances are growing and all that type of a thing. So if the market tips upside down and the employee says, well, you shouldn't have never offered me those investment choices. Uh, how does an owner protect against that? What what's their, what's their mechanism for protection? Well, I think that's the biggest fear that everybody has is that that issue of geez, am I doing my my job correctly. Now remember a fiduciary is the highest legal standard, and I mean that's really as far as it goes, and it deals with people that are holding other people's money and so they want you to be very, very careful and very, very diligent in what you're doing. That's the bad news, and, and the bad news is also that, that you're personally liable. Now, the good news is, if you have procedures and practices in place and you follow those procedures and practices, the results don't matter. And let me explain that. There's a famous case that involved a person that had a qualified retirement plan. I think they had $200,000 in assets in the plan. They took like 190,000 of those, invested in some stock that sold within a year and a half for $6.2 million. An absolute home run for everybody. Everybody was really happy about it. The problem was it was a breach of fiduciary duty because you don't want to put all your eggs in one basket. It's one of the rules of a fiduciary is that you want to diversify assets to minimize loss. And while this thing had a great home run record, the problem was that it put way too much risk on people's life savings, and and that's a perfect example of situations where it's not, it's not a question of result. It's really a question of did you act like a fiduciary. That's a great point. That's a great point. So give some people think something to listen to and learn about and think about. Am I doing the right thing? Am I following a process that has been basically designed to help prevent, uh, potential liabilities, but things go wrong? So let's talk about these IRS audits again, Harley. These the IRS audits of retirement plans, uh, what's going on in that field and, and, uh, what should our listeners be careful about? Well, and the first thing I want to throw out is be cautious. This is like litigation, and, and, and I don't like people to go into these things. I mean, I, I cannot tell you how many audits I've taken over the last 6 months that were started by a TPA or a CPA, and they just didn't know how to deal with this stuff, and the IRS came after them. Um, you know, the agents are trained in psychology. They, they look at people and they see stress and they're trying to see if you're, you're hiding things from them and stuff like that. I mean, that's, that's how sophisticated they've they've become. And it's because they're, they're, they're revenue driven. They want to find mistakes in your plans and you know, most of us that do this, you know, we can give you 5 or 6 things that we know they're always going to look at and I'll give you a couple right now. Um, one of the most common situations that we see is, you know, 401k plans you have an employee that says, yeah, I want to put money into the plan, put in 3% of my pay, and if they earn $100 you're going to put in $3 for them. Um, now what happens is that's supposed to go into the plan, and when the IRS audits you, they'll say, Well, let's pull that that employee's ticket, and they have a 3% election, and they'll look at the $100 that they made and they'll look at the $33 contribution. They'll say, OK, that's fine. What happens is payroll systems oftentimes, payroll systems, especially on the payroll side, love to categorize, so they'll have, you know, 15 to 20 different categories of compensation. But the big problem for the employer and what they need to look out for is that there are many things that are compensation, but they're not being withheld from perfect examples of auto allowances or phone allowances. These are situations where you're not withholding on them. Now it's very simple and very legal to just say we're going to withhold 3% of compensation on pay and bonus, you know, your, your actual salary and bonus, but we're not going to withhold on anything else. That's perfectly legal, but many people missed that issue. And it's one thing that I guarantee if you have an IRS or a DOL audit, they will look at that issue. So it's important to have that specified clearly in the plan document, is that what you're saying? Yeah, and, and more so, you know, going into the audit, when you get a notice of audit, one, you know, one of the things that I think is a big mistake a lot of clients make is that they don't get an attorney involved in it and they don't look at, you know, what can we fix now because like I said, they have these amnesty programs now, and many, many times, you know, as soon as you get the notice of audit from the IRS and DOL, you can't correct things. And it's one of the reasons why I've always been a big fan of auditing, you know, right now under ERISA you don't have to audit a 401k plan unless you have more than 100 participants. Um, but the audit process is a great thing because you have an auditor that's always looking over the third party administrator's shoulder and saying, are you crossing all your T's and dotting all your I's? And a perfect example is this compensation issue I just raised. We see that brought up by auditors all the time because they see it. They, they see the IRS and DOL examinations also, and they know these are, these are common mistakes that people make. So if I'm a small employer and I have, uh, you know, half a million bucks in my 401k plan, it seems like an audit might be an expensive endeavor, but is it, and if I, if I do decide to do it, should I do it ongoing every year, every couple years? What's the right, there's, there's always, yeah, there's, there's always this, this push to do the right thing, and I mean, you know, I wish I had all my clients who would come in and say, yeah, let's take a look at this stuff. I mean, lifting the hood and and kind of checking the the the belts and the pipes and everything else, it's a good thing to do every once in a while, but it is expensive and I mean, and when I say expensive, it's, it's, it's not as bad as you would think, but there's many, many things that you can you can go over with your advisers, um, you know, most people meet with their 401k people, you know, at least annually. I mean, I see it more, you know, the larger plans they'll go into 4 times a year. I prefer everybody did 4 times a year because it's just a better way to keep looking at stuff. Uh, because stuff does come up and you do start to see things and, and you know, if you every couple 3 years just you know, hire someone to come in and take a quick audit and, and there are, there are auditors that will do this for a fixed fee. There's attorneys that'll do it. There's your TPAs will do it. Um, it makes sense. It's always great to have additional eyes on, on this complicated process because all of us, you know, and I include myself, it, you know, we'll make mistakes. It's just very, very complicated. You might cross this T and dot this I. The payment on a loan didn't get paid fast enough. There's just so many different things that can happen when you're not paying attention to this full time, which, which you wouldn't expect any of the C-suite people to do, you know, this is usually delegated down to HR. And they're the ones that are, you know, that are taking care of most of this stuff and while they're, they're trained professionals, you know, they, they don't, they don't, they don't have that level of detail or the ability to have that level of detail because they've got other functions they've got to serve. Harley, if a business owner is contemplating sale of their business to another business and they have their 401k and their benefits, how soon before that sale should they come in and talk to someone like you to take a look at their benefits and discover issues before they become problems? Well, Bill, you and I have been through a million transactions. They will look at this. I guarantee you it's not even they might. They always look at it and remember one thing, there's always a duplication when one company's buying another. The Target company has health plans, retirement plans, and everything else just like the buyer does. And most of the time what the buyer's doing is they're going to make everybody in the Target company be pulled into their plans. But for the most part they don't want to bring, and what I like to call it a cancer, if you take over a body and it's got cancer in it. you're stuck with the cancer and so a lot of times what they'll do is they'll try to isolate the seller's plan and have them terminate that before they actually buy the company. And in doing that you're going to have a mini audit of that plan. I mean, as a lawyer, I'm hired one of my biggest set of clients are big law firms that use me to do the due diligence on a retirement plan or a health plan or whatever it is just to take a look at it, pick up the hood, make sure they're They got compliance because it's not going to blow the deal. It's not going to be a major issue, but to the extent that there are liabilities associated with it, well, obviously that's something that's going to go into the purchase price. It's going to go into any reserve that's being held. And so you need to be cognizant of it and you need to be aware of of any potential problems that are out there. And certainly any, any potential final funding requirements that will come up that before they become a surprise at the end, right? Yeah, well, that's a big one if you have a defined benefit pension plan. Um, they're, they're very different than 401k plans and, and what we call defined contribution plans which are profit sharing plans and ESOs and, uh, money purchase pension plans and things like that, but. A defined benefit pension plan has funding obligations, and many times people don't find out about this. If you're involved in unions, if you're involved in these kinds of plans, you'll see that there's massive underfunding in these plans. I mean, some of, I've, another major thing that I've been seeing lately is, is people that were contributing to union plans are going out of business, and they owe so much money on withdrawal liabilities that they can't afford to retire. Scary stuff. Wow, oh, that's yeah it's incredibly bad, bad surprises to find at the end. You can spot an expert, um, you can tell an expert when you hear him. Harley B Eland is an expert. Harley, how do our listeners get in touch with you and, um, and what's the best way? Well, my, I, I do have a website, the ERISA law firm.com, and, and, and I, I'm, I'm a big marketing nut, but I haven't gotten around to doing my updating my website. But one of the features I do have on there is I do say you got a question, send it to me and I'll respond. So I ask, uh, people to email me and that's what my email is Harley at the ERISA law firm and I'm always willing to help people out and answering questions because, you know, sometimes you don't need me and sometimes you do. Great information. It's always fun to have you on. And again for our listeners, you can always go to our audio library at X Coach Radio and find prior interviews with Harley on a variety of topics. We've talked about executive benefit plans. We've talked about all, all nature of, of uh qualified and non-qualified plans. Harley, it's always fun to have you on and great, great to hear your voice, and I, I look forward to the next time we speak. Awesome love love to be with you. Alright, we're gonna take a short break we'll be right back after this, so please stay with us. Hi everybody, this is Spike Riel with the Exit coach. Business owners, can you name the 8 key value drivers that you and your manager should be focusing on to increase the value of your business? 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