By Ary Rosenbaum, Esq.
When you work as an ERISA attorney for TPAs for nearly a decade, you get a front-row seat to some of the most creative interpretations of the law imaginable. I don’t say that as an insult—I say it as someone who spent ten years putting out fires that never should have been lit in the first place. Let’s just say there were some plan administrators who could have benefitted from a crash course in ERISA basics, or maybe even a high school civics class.
There was one guy, God bless him, who didn’t know Puerto Rico was a U.S. Commonwealth. I wish I was making that up. To him, Puerto Rico might as well have been another country with its own ERISA rules and 5500 filing system. I tried explaining that Puerto Rico is as American as apple pie, but he didn’t quite buy it. Maybe he thought you needed a passport to approve a loan distribution.
Then there was the plan administrator who approved hardship distributions on 401(k) deferral earnings, twelve years after that practice was outlawed. He looked at me like I was speaking Klingon when I told him earnings weren’t eligible for hardship withdrawal anymore. I didn’t know whether to laugh, cry, or hand him a copy of the regulations with a highlighter.
And who could forget the guy using a seven-year graded vesting schedule five years after EGTRRA eliminated it? I guess he thought “EGTRRA” was some kind of dinosaur. Every participant who terminated that year got a benefit statement straight out of 1995. I remember explaining that EGTRRA had changed vesting rules years earlier, and his answer was something like, “Well, that’s how we’ve always done it.” Famous last words in the ERISA world.
But the one that will live in infamy for me was the plan administrator who proudly admitted—without a hint of shame, that he reconciled a daily valued plan quarterly. I actually paused, thinking maybe I misheard. Nope. He was reconciling a plan that changed every single market day four times a year. That’s not plan administration, that’s wishful thinking.
The moral of the story? If you’re a plan sponsor, make sure the people administering your 401(k) plan know what they’re doing. ERISA isn’t a “learn as you go” area of law, it’s a “get it right or pay for it later” business. A bad plan administrator doesn’t just make mistakes, they create liabilities, trigger audits, and give participants reasons to file complaints.
And for the love of compliance, make sure your administrators know that Puerto Rico is part of the United States.
Because whether it’s hardship withdrawals, vesting schedules, or geography, ignorance isn’t bliss—it’s a DOL audit waiting to happen.
Ary Rosenbaum, Esq. is the managing attorney of The Rosenbaum Law Firm P.C., helping plan sponsors and providers navigate ERISA compliance without losing their sanity—or their sense of humor.
