Employee Fiduciary Update - 15 months in

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Topic Author
ERISA Stone
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Joined: Tue Jun 24, 2014 8:54 am

Employee Fiduciary Update - 15 months in

Post by ERISA Stone » Wed Mar 21, 2018 12:29 am

Since I have heaped quite a bit of praise on Employee Fiduciary since I signed up with them in 2017, I feel obligated to update the board on a few issues. I've always tried to understand how EF was able to offer such low rates and a premium service, and I think after this round of administration it's becoming a little clearer.

I helped a friend set up a plan with EF in 2017 as well. He has a safe harbor nonelective contribution and requested a cross-tested contribution allocation projection. He requested that his annual additions limit be maxed out for 2017 (he is the owner). The projection had less than 10 employees.

First issue - EF allowed an ineligible employee to be included in the projection. When the owner questioned why the employee was a participant even though she didn't meet eligibility requirements, they indicated that the "terms" had changed and she was eligible. Only after the owner persisted did EF back down and confirm she wasn't eligible. Due to the minimum gateway requirement & SH contribution, they had allocated over 5% of this employee's compensation in the projection.

2, and really unforgivable in my experience - EF gave a 2nd HCE a higher contribution than all other participants other than the owner. EF didn't ask the owner how the other HCE was to be handled. I advised the owner to tell EF to give the HCE only the 3% SH contribution (NO PS contribution. This is a HUGE benefit to have this scenario in a cross-tested projection) but EF insisted the other HCE should get the gateway minimum. HCEs don't need to receive the gateway minimum. It's an NHCE requirement only. This added approximately $20k!!(the entire PS contribution was estimated at only $93k) to the projected contribution amount. Again, only the owner's persistence with multiple replies caused EF to back down on their claim.

Personally, with my plan, I am still waiting on EF to provide my year end administation report. I turned in all of my paperwork via their required timeline, and they still didn't get the report to me by 3/15. They don't know that I extended my corporate tax return. Otherwise, I would have some required contributions to make that I wouldn't be able to deduct as I need to make some true-up contributions to my SH matching contribution.

Anyway, that's about it. The first two issues for my friend may not sound like a lot but consider if he hadn't known someone with experience in plan design reviewing the work. Think about how many people go to EF because of low fees and receive a similar allocation. They wouldn't think to question it and would end up paying A LOT more money in the end (about $22k in this case for both mistakes above). Also, the employees at EF that corresponded with the owner were senior relationship managers. He wasn't dealing with assistant level employees.

I am recommending that my friend look for another TPA firm that might cost a little more but would likely not make the same mistakes. If I didn't have the benefit of being able to check their work, I would leave after I receive my report as well. I'll probably stay another year just to see if year 2 goes smoother.

smitcat
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Re: Employee Fiduciary Update - 15 months in

Post by smitcat » Wed Mar 21, 2018 7:02 am

Just for additional data:

We have been with Employee Fiduciary a bit over 2-1/2 years now with a safe harbor plan that has 8 employees currently participating.
- We have had prolems with our payroll company
- We have had no problems with EF
- Our deductions include the age related 'catch up' no problem es
- Our third year filing taxes with EF in the mix and no glitches (other than the payroll co.)
- Our accountant has said their docs are easy to work with and spot check.

The largest disappointment with the EF 401K remains participation and employees leaving the plan.

Topic Author
ERISA Stone
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Re: Employee Fiduciary Update - 15 months in

Post by ERISA Stone » Wed Mar 21, 2018 8:52 am

smitcat wrote:
Wed Mar 21, 2018 7:02 am


The largest disappointment with the EF 401K remains participation and employees leaving the plan.
Then you don't have any issues with EF because this isn't in the scope of administering a 401k plan. That falls on the company and the advisor if you have one.

smitcat
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Re: Employee Fiduciary Update - 15 months in

Post by smitcat » Wed Mar 21, 2018 9:03 am

ERISA Stone wrote:
Wed Mar 21, 2018 8:52 am
smitcat wrote:
Wed Mar 21, 2018 7:02 am


The largest disappointment with the EF 401K remains participation and employees leaving the plan.
Then you don't have any issues with EF because this isn't in the scope of administering a 401k plan. That falls on the company and the advisor if you have one.
Yes - I know. This is the second attempt to run a 401K plan, the first was not a safe harbor and failed due to lack of participation.

Raabe34
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Re: Employee Fiduciary Update - 15 months in

Post by Raabe34 » Wed Mar 21, 2018 10:15 am

Can you engage EF as a recordkeeper only and then hire an outside TPA?

Topic Author
ERISA Stone
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Re: Employee Fiduciary Update - 15 months in

Post by ERISA Stone » Thu Mar 22, 2018 9:28 am

Raabe34 wrote:
Wed Mar 21, 2018 10:15 am
Can you engage EF as a recordkeeper only and then hire an outside TPA?
I doubt it but maybe. Most TPAs might be willing to do testing (we called this wrap services but that term can have several meanings depending on the company you're talking to) and not recordkeeping but I don't know of any who are willing to do recordkeeping only.

JStephens
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Re: Employee Fiduciary Update - 15 months in

Post by JStephens » Thu Mar 22, 2018 9:43 am

ERISA Stone wrote:
Wed Mar 21, 2018 12:29 am

2, and really unforgivable in my experience - EF gave a 2nd HCE a higher contribution than all other participants other than the owner. EF didn't ask the owner how the other HCE was to be handled. I advised the owner to tell EF to give the HCE only the 3% SH contribution (NO PS contribution. This is a HUGE benefit to have this scenario in a cross-tested projection) but EF insisted the other HCE should get the gateway minimum. HCEs don't need to receive the gateway minimum. It's an NHCE requirement only. This added approximately $20k!!(the entire PS contribution was estimated at only $93k) to the projected contribution amount. Again, only the owner's persistence with multiple replies caused EF to back down on their claim.
We just started a plan with them, but the contributions aren't dictated by EF. A report is just uploaded from the payroll system saying "this person is contributing this amount with this much match". This sounds like a payroll setup issue. EF holds the records, but there's not a way for them kick back anything because you have all ready deducted it from the persons payroll.

Topic Author
ERISA Stone
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Re: Employee Fiduciary Update - 15 months in

Post by ERISA Stone » Thu Mar 22, 2018 9:47 am

JStephens wrote:
Thu Mar 22, 2018 9:43 am
ERISA Stone wrote:
Wed Mar 21, 2018 12:29 am

2, and really unforgivable in my experience - EF gave a 2nd HCE a higher contribution than all other participants other than the owner. EF didn't ask the owner how the other HCE was to be handled. I advised the owner to tell EF to give the HCE only the 3% SH contribution (NO PS contribution. This is a HUGE benefit to have this scenario in a cross-tested projection) but EF insisted the other HCE should get the gateway minimum. HCEs don't need to receive the gateway minimum. It's an NHCE requirement only. This added approximately $20k!!(the entire PS contribution was estimated at only $93k) to the projected contribution amount. Again, only the owner's persistence with multiple replies caused EF to back down on their claim.
We just started a plan with them, but the contributions aren't dictated by EF. A report is just uploaded from the payroll system saying "this person is contributing this amount with this much match". This sounds like a payroll setup issue. EF holds the records, but there's not a way for them kick back anything because you have all ready deducted it from the persons payroll.
That's the match, and I assume you are matching on a payroll period with no "true-up" at year-end. The statement above is in reference to a cross-tested (new comparability) profit sharing allocation. They are very effective for companies with the right demographics but as you can see from what I wrote, it's not very effective if they are providing contributions to ineligible participants or overstating the required contribution by 30%.

TIAX
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Re: Employee Fiduciary Update - 15 months in

Post by TIAX » Thu Mar 22, 2018 9:59 am

Thanks for the update. Who would you use over EF? Do you think EF is fine with a simpler plan (e.g., regular safe harbor, no cross testing)?

niceguy7376
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Re: Employee Fiduciary Update - 15 months in

Post by niceguy7376 » Thu Mar 22, 2018 11:03 am

To summarize:
1. If it is a small business with the min % contribution to eligible employees, EF was just fine since they don't need to do any testing and just do record keeping.

2. Any business that has profit sharing and/or more complex testing requirements that EF needs to do - EF currently has issues.

I, as a small staffing company, would prefer to go to EF or Guideline to have a small business 401k than the current Fido SIMPLE IRA. But the employee size and participation is preventing me to make that change though it gives me 6.5K more to contribute per year.

entraining
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Re: Employee Fiduciary Update - 15 months in

Post by entraining » Thu Mar 22, 2018 11:50 am

We have been using EF for 3 years now. We have used them for end of year profit sharing using new comparability tests for all 3 years as well.

We have had two relationship managers during our time with EF. One for the first two years and then it appears she left the company and we got a new one last year. For the first two years, there weren't any major issues.

This past year there were some issues with ineligible participants for the profit share and forfeiture account calculations that I was able to flag. However, this appears to stem from our new relationship manager being "new" and not knowing all of the rules/regulations inside out. Our previous relationship manager of two years was pretty on top of things.

While I am no expert on these plans, as a business owner I try to be on top of everything. Throughout our time in business, our CPA, lawyer, payroll provider, group health insurance provider, shipping company, etc. have made various mistakes that I have needed to correct at some point. People will make mistakes. Ultimately, the best one to look out for your money is you.

EF is not perfect. But, for the right small business that wants a low cost provider that also offers new comparability tests, I think they are in a sweet spot. We looked into switching providers recently now that asset based fees are growing due to the size of the plan; however, either it became an issue of overall costs still not making sense or the new provider not offering new comparability options. I believe within the next few years, we will need to revisit this but for now EF makes sense for us.

Topic Author
ERISA Stone
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Joined: Tue Jun 24, 2014 8:54 am

Re: Employee Fiduciary Update - 15 months in

Post by ERISA Stone » Thu Mar 22, 2018 12:35 pm

niceguy7376 wrote:
Thu Mar 22, 2018 11:03 am
To summarize:
1. If it is a small business with the min % contribution to eligible employees, EF was just fine since they don't need to do any testing and just do record keeping.

2. Any business that has profit sharing and/or more complex testing requirements that EF needs to do - EF currently has issues.

I, as a small staffing company, would prefer to go to EF or Guideline to have a small business 401k than the current Fido SIMPLE IRA. But the employee size and participation is preventing me to make that change though it gives me 6.5K more to contribute per year.
Respectfully, you seem to have glossed over the fact they were allocating contributions to an ineligible employee, not just profit sharing. Determining eligibility is a basic task and the company in question has less than 15 EEs to review.

Each company has to determine what vendors work best for them. I would be very hesitant to assume anyone outside a TPA is going to understand cross-testing provisions. I certainly would not assume my accountant understands the rules because that's not generally part of an accountant's expertise. But again, to each his own.
Last edited by ERISA Stone on Mon May 14, 2018 12:30 pm, edited 1 time in total.

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JamesSFO
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Re: Employee Fiduciary Update - 15 months in

Post by JamesSFO » Mon May 14, 2018 12:04 pm

Interesting, thanks for sharing.

We've had good luck with Ascensus/Vanguard. But even still have noticed mistakes where some of their year end projections do not match payroll submissions through their portal. I think at the end of the day running a 401K turns out to be harder than it seems like it should even for routine requests.

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