Simple Advice to Retirement Plan Sponsors

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Make sure everyone is on board with the change

Sometimes no matter how hard you work on a plan and do such a great job, oe person working for your client can cost you them as a client.

When I worked for a third party administrator (TPA), we were referred a 401(k) plan by the financial advisor. I thought we did a really good job. The problem is that the human resources director hated us from day one because we wouldn’t do the work she received from the previous TPA she liked.  She made it a point that she wasn’t for the TPA change.

She was a problem from Day 1, but we took the case because we had a great relationship with the advisor. Some people you can never satisfy, so I think she was always going to find a reason to get rid of us.

At one point, the client seemed to be interested in changing the plan by making it a K-SOP, basically adding an employer stock ownership feature (ESOP) to it.

The client’s advisor asked me about our experience with it and I was honest, I said we had a couple of those cases. My boss who also was an ERISA attorney, flew out to meet the client and discuss adding the stock ownership component.. Story cut short, we lost the client as well as the advisor.

The point here is that you should always make sure everyone is on board with the change because if not, understand that you will fight a never-ending battle not to get fired.

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What Phyllis Borzi got wrong

It’s been about 4 months since Phyllis Borzi left her position as the head of the Employee Benefit Security Administration (EBSA) and as time passes by, we can certainly opine on her accomplishments in that position. Of course, since I’m highly opinionated, I’m going to opine on the one area that Ms. Borzi got wrong.

While Borzi was given marching orders from the White House to allow states and municipalities to get into the small business IRA business (follow?) that would get more employees covered under her retirement plans, her administration screwed up one area of retirement plan coverage that never corrected for the last 4 years of her tenure.

Where did Borzi go wrong? Under her administration, EBSA effectively killed open multiple employer plans (MEPs) which allowed for unconnected employers to adopt these plans and avoid the bulk of the headaches of being a retirement plan sponsor. I say EBSA effectively killed these open MEPs through an advisory opinion on a MEP that created a plan sponsor to implement the MEP. I’ll never understand why the MEP wanted that advisory opinion and I certainly understand some of the reasons why EBSA went the way it did, I’ll never understand why they punted on offering guidance for these Open MEPs to allow them operate as one single plan for ERISA purposes. I think some EBSA guidance was warranted especially because I still believe they got it wrong since their opinion conflicts with Internal Revenue Code Section 413(c).

When you compare what the open market can offer, I believe Open MEPs are a better choice for retirement plan coverage than any IRA products offered by a state or municipality. People don’t trust governments and what employees can save under a qualified plan are far greater than what an IRA can offer.

So while Congress has failed in implementing Open MEP legislation, I still think the one thing that Borzi got wrong was the advisory opinion on Open MEPs and the failure to issue guidance to allow tem.

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Small 401(k) Plans Have Bigger Problems Than Larger Plans

My latest article for can be found here.

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The problem with fiefdoms

The Brady Bunch was probably everyone’s vision of what a perfect family was. There two sets of a parent with three children of their own and together they blended the families and everything ended up happily after a 22-minute episode. It might have been fantasy, but the idea is that people should come together and get along.

Businesses need to come together and get along. There can be a Balkanization of a business where there are separate fiefdoms or divisions. I would see that often with law firms where the law firm was brought together by adding solo lawyers together so each lawyer was protective of their client list. I’ve seen that with a third party administration firm where the compliance department fought with the administration department and when the head of administration took over the entire operation, the compliance department resigned en masse (I saw it all). I had a struggle just getting a client list from a chief operating officer who didn’t want anyone to have one, so I had to create one with administrators who treated their list of clients as some fiefdom.

Businesses lose money by being inefficient and when departments don’t work together, there is less money to make. You don’t need an MBA course to tell you that. I’ve seen so much inefficiency in these type of scenarios and it drives me crazy because I’m a one lawyer shop. You need to maximize revenue and reduce anything that impedes that. The problem is that medium and small sized businesses don’t realize how much money they’re leaving on the table by not getting rid of the little kingdoms.

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Yes, DOL audits are more terrifying

I have to see that as after 18 years, there is very little I fear and I fear of retirement plan audits by the Department of Labor (DOL). I’m going to have a larger fear as it’s clear that DOL audits will increase thanks to increased regulation and oversight.

Why do I fear it? Usually, unlike Internal Revenue Service (IRS) audits, they don’t seem to be random. There is a randomness to many, but many audits are thanks to a complaint filed by an aggrieved plan participant. My two biggest DOL audit issues were from issues that appeared small, but were bigger plan disasters and both resulted from former employees that they weren’t covered under the plans when they should have. Complaints and audits are an opportunity for the DOL to dig and they do a really good job of digging. I think they are scarier because unlike the IRS audits, they’re concerned about the rights about plan participants and when you are trying to identify if someone’s rights are being violated, then you maybe a little more dedicated in what you’re doing and I find DOL agents to be very knowledgeable and through.

If you hear from the DOL, immediately contact an ERISA attorney. I say that with peace and love, don’t ever handle it by yourself.

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Advisors Advantage

My latest newsletter geared towards retirement plan providers can be found here.

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For Retirement Plan Providers, It’s All About Relationships

My latest article on can be found here.

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Give your clients a football

When I was in college and law school, I had this fancy leather bound DayRunner that had all my contacts, business cards, and notes. For 1992-1998, it was state of the art because I didn’t have the shekels for a Palm Pilot and the Newton couldn’t read my writing anyway.

I called the DayRunner, the “football” in recognition of the “nuclear football” attaché case that stores all of our nuclear launch codes that is usually handcuffed to someone up the chain of the military command.

I’m sure somewhere in my mind, I though the name and number of the recruiting coordinator at the Irvine, CA office of Ernst & Young was as important as a launch code, it wasn’t. It reminds me, she never did let me now about that job from 1998.

Seriously, to differentiate yourself as a plan provider, it maybe wise to give clients their own “football”. Their football wouldn’t have codes, but the important stuff that all plan sponsors need. That would be copies of the plan documents, the investment policy statement, fund menu, minutes from fiduciary meetings, materials that were handed out at enrollment meetings, or some other things that you may deem worthy. These days, it doesn’t even have to be in a fancy binder because a USB flash memory key can do the trick.

It maybe a gimmick, but it’s a good gimmick. It allows you to differentiate yourself from the competition, and a little gift to a client goes a long way. I knew of an advisor who did this many years ago, probably to justify the 75 basis points he was charging at the time. Regardless of what you charge, I think it’s an effective tool.

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Culture only comes from the top

I was leaving a position as an ERISA attorney at a third party administration (TPA) firm for what I thought would be greener pastures. The TPA quickly hired an unemployed ERISA attorney for the role and when he was telling me how he was going delegate work to some of our administrators to help him out, I predicted he wouldn’t last 6 months. He lasted 4 months.

What he failed to realize and what I knew was that there was a culture where the administrators wanted to do nothing other than the work they had to do. I couldn’t blame them; most of them were overworked. It was a culture there that the administrators had where they did everything for clients except for trading, so they had no interest or time in helping me when I needed their client list to send out retainer letters for amendments and restatements.

No matter how much this ERISA attorney would have tried, he would have failed because there was a culture there that would not change. The change can only come from the top. I’ve learned that way in the places I’ve worked. There was a culture that I may not have been a big fan of, but I kind of knew that I’d have no way to change that because the change can only come from the top.

If the office is in disarray or good talent isn’t appreciated, that’s part of the culture and the DNA of the firm and it can only be changed when the leadership decides to make a change.

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