These Are The Errors That A 401(k) Plan Sponsor Should Look For

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When The Fiduciary Warranty is Dangerous

I don’t pull any punches, so I have certainly written many articles about plan providers issuing something called a fiduciary warranty, that is free and doesn’t protect the plan sponsor from almost any liability because plan sponsors never get sued for what the warranty is supposed to protect plan sponsors from.

While a fiduciary warranty is just a marketing gimmick, I never thought it was dangerous. I always saw it as a marking throwaway. I recently received information from my client regarding a plan provider touting their fiduciary warranty that I find to be absolutely dangerous. The materials and the email from the plan provider make it seem that a fiduciary warranty can be used as a replacement for a plan sponsor using an ERISA §3(21) or §3(38) fiduciary. A fiduciary warranty “protects” a plan sponsor from liability when dealing with the broad range investment requirement for plan investments. To quote Montgomery Scott from Star Trek III: “a money and two trainees” can meet that requirement. The same goes with selecting the QDIA fund as well.  That’s far different from what a §3(21) or §3(38) fiduciary does in limiting the plan sponsor’s liability with investment selections, fiduciary process, and participant investment education. A fiduciary warranty is worthless as opposed to hiring a financial advisor, which is what a plan sponsor needs. I find it reckless that any plan provider would suggest that a fiduciary warranty can replace the effectiveness of a financial advisor.

A fiduciary warranty is worthless, but harmless on its own. However, it is marketed and used as some alternative to hiring a good financial advisor, it is misleading and fraudulent advertising.

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Redemption only goes so far

My great Uncle Jack was the youngest of 4 children. He followed Herschel, Zoltan, and my grandmother Rozalia. He was a troublemaker when he was a kid. One time, he gambled away the family’s ration coupons and my grandmother had to get hem back. One day, he was cutting school with Zoltan to attend a soccer game and ran into his parents. He was rebellious and that was the complete opposite of my grandmother. Uncle Jack and my grandmother were the only members of the immediate family that survived. Uncle Jack met Aunt Clara in a displaced person camp after the war and he moved to the United States. When my grandparents and their children came to the United States in 1964 because Uncle Jack sponsored them, one of the first things he told my grandmother was how he wished their parents could see how he turned out. I’m sure it was Clara who had a positive effect on him. When his daughter’s husband left her when he had three young children, it was Uncle Jack who became the father that those children needed. Jack and Clara moved from the Whitestone, Queens area that they loved to move in with their daughter because Jack was a very selfless man. Uncle Jack was one of the greatest men I knew, next to my grandfathers because while he might have been a troublemaker as a kid, he showed everyone in my family what a real man is and I think everyone including myself will always fall short when we compare to him. People can change and Uncle Jack showed that we don’t have to be born a saint to become one.

I believe in redemption, I believe that people can make mistakes, atone for them, and turn it around. However, it only goes far. I know that there are people who are convicted of crimes and make amends for it and I can accept that. However, when dealing with plan providers, trust is a very important concept that I need and I can’t hire a provider if I know one of the principals is a convicted felon of a financial crime. If you’ve been convicted of check fraud, I’m just not going to hire or refer business to you. It’s all about trust. While I’m sure people will try to say that such a person is trustworthy and that the crime is somehow analogous to a DWI conviction. I don’t think it’s the same, but I will say that: I won’t hire someone to drive me or my family with a DWI conviction. After the Vantage Benefits debacle where a person sanctioned by the SEC is accused of stealing millions from retirement plans, I would advise any plan sponsor using a plan provider where the principal was convicted of a financial crime to run away as fast as they can from them.

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Don’t show clients you don’t care

It’s one of the greatest lines in a movie and even my 11-year-old daughter knows it. Harrison Ford playing Richard Kimble finds the gun that Federal Marshal Samuel Gerard played by Tommy Lee Jones dropped in The Fugitive. Gerard’s job is to track down Kimble. Kimble points the gun at Gerard and tells him he didn’t kill his wife. Gerard said he didn’t care because his job as a Marshal was to bring Kimble back into custody.

One of the biggest problems in dealing with clients is when they feel you don’t care. While I’ve never come across a plan provider who told their plan sponsor client they didn’t care, I’ve seen quite a few that let off an attitude that they didn’t care. Whether it’s the third party administrator that butchered compliance testing or the advisor who can’t bother to visit the client at all,  there are enough plan providers who show clients that they don’t care. Don’t be that provider, don’t ever give the perception that you don’t care about your clients.

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Always be watching

Who can forget Alec Baldwin’s speech in Glengarry Glenn Ross on how salesmen should “Always Be Closing” and how coffee is for closers only? It was the highpoint of a great movie.

I’m not going to go through a discussion on sales, but a cautionary tale that you have to advise your clients to navigate a path where other plan providers will try to sell you client products or services that they don’t need. So instead of Always Be Closing, you should “Always Be Watching” what happens with your client.

I once had a retirement plan sponsor client trying to terminate his retirement plan. The retirement plan had a fully paid up insurance policy and the sole owner participant wanted to purchase that policy from the Plan. So my client talked with a salesperson with the insurance company about the policy. Of course, the new salesman wants to sell my client another insurance policy that he didn’t need because the business was folding and he was 71.  So I always watch and my client avoided buying that new policy.

I advised my client that he should open a new bank account for his retirement plan at the local bank when dealing with transferring the life insurance policy. So my client went to the local bank to set up a bank account for the plan’s trust. The bank told him that he has to meet with the financial advisor at the bank, i.e, the broker. Why does anyone have to meet a broker to open a bank account? Not to talk about how my Mets will do in 2018.

It’s not enough to service the client, you always have to watch and make sure that the client doesn’t end up buying retirement plan services and products that they don’t need.

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Home Depot is the next 401(k) lawsuit target

The company that told us we can do home improvement by ourselves might not have been able to properly run their 401(k) plan.

Home Depot is now the target of a $140 million class-action lawsuit that was filed in the U.S. District Court of the Northern District of Georgia.

The lawsuit claims that Home Depot violated their fiduciary duty by mismanaging their 401(k) retirement plan. According to the complaint, Home Depot selected multiple poorly-performing funds for its 401(k) plan, that allowed their investment advisers to charge its employees unreasonable fees. It also claimed that Home Depot turned a blind eye to a kickback scheme between an investment adviser and the plan’s recordkeeper

The Plaintiffs alleges that with their $6 billion plan that Home Depot arranged for the investment advisor Financial to sell investment advisory services through “robo advice,” in which “a robot creates cookie-cutter portfolios based on minimal participant input.” It’s also alleged that Home Depot allowed Financial Engines to charge plan participants advisory fees that were in some cases double the competitive rate. While Financial Engines was replaced by Alright Financial Advisors in 2017, they rehired Financial Engines as a sub-advisor. The lawsuit names Financial Engines and Alright as co-defendants.

With 20,000 employees, $6 billion in plan assets, and using a robo-advisors, suing Home Depot is an ERISA litigator’s dream. Whether this lawsuit survives a motion for summary judgment is anyone’s guess. Regardless, it’s important for a plan that size to be careful out there.

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A Plan Sponsor Needs To Avoid Being The Patsy

My latest article on can be found here.

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A Little Humor May Help

When I worked at that law firm, I always felt I was Al Czervik, the Rodney Dangerfield character from Caddyshack while the Managing Attorney was like Judge Elihu Smails or maybe Smails’ wife since the Managing Attorney was female. Regardless, I was always treated as if I didn’t belong. Didn’t matter if I brought in business or got my name quoted nationally or gave away U.S. Open tickets at Bethpage, the Managing Attorney didn’t like me.

They were so serious there. Like the Joker in The Dark Knight, I always wanted to know: “Why so serious?” If you read my blog posts and articles, besides the grammatical errors, you probably notice the humor. Maybe I’m a failed comedian, but comedy here and there is my way of making the audience more comfortable when they have to digest some dense topics like ERISA and 401(k).

You should never take yourself too seriously. You shouldn’t belittle what you do, but a little humor goes a long way in breaking down walls that might be placed up by an audience that feels they’re going to be bored with what you’re going to say in your role as a retirement plan provider.

Don’t operate your business as a retirement plan provider as a stuffy country club. Marketing materials and discussions tinged with a little humor is a great way of breaking down barriers with potential clients who view talking about retirement plans the same way they think about going to the dentist.

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That 401(k) Conference to hit Chicago this September

Thanks to the immediate outpouring of support from plan provider sponsors for the inaugural That 401(k) Conference, I am proud to announce that the next one will emanate from the friendly confines of Wrigley Field this September.

We have already received pledges of sponsorship for this Chicago event already and will certainly need more support. A stadium tour is likely and there is likely a group ticket event the night before or day after, details are being ironed out.

We have also received lots of interest in hosting events in Tampa Bay, Boston, Philadelphia, and Los Angeles. If you’re interested in having this memorable 401(k) advisory event in your neck of the woods, let me know.

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401(k) Plan Sponsors Aren’t Aware Of These Mistakes They Make

My latest article on can be found here.

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