How 401(k) Plan Sponsors Can Improve Their Plan On A Shoestring

My latest article on can be found here.

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Anyone can be a TPA and that’s a problem

With apologies to Tod Higgins (played by Keanu Reeves) in “Parenthood”, you need a license to practice law to be an ERISA attorney, you need to be a CPA to be a retirement plan auditor, you need a securities license to be a financial advisor, but any shmuck can put out a shingle and call themselves a third party administrator (TPA).

There is no required training or licensing for someone to operate a TPA business and I find that scary for a position that requires such knowledge and expertise to do the job of plan administration and recordkeeping properly.

So when looking for a TPA, look for any ASPPA or CEFEX designation or other accreditations such as an enrolled actuary among the professionals you hire as your TPA.

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What’s In It For Them?

When I worked at that semi-prestigious law firm as an associate, my goal was to develop a national ERISA practice and I thought that a great foundation was the firm’s existing business clients. I thought it would make sense since the originating attorney for the client would get a 50% referral fee from any fees I originated on the ERISA attorney side. For some reason, these former solo attorneys were more interested in protecting their clients than making money.

So rather than sitting around and waiting to die, I tried to engage financial advisors and trying to sell them my legal services by citing my flat fees and how I was less expensive than what my former third-party administrator was charging and I could offer an attorney-client relationship. One advisor put it out bluntly: “what was in it for him as an advisor?” There was no quid pro quo, but I knew that getting cost-effective legal services for his clients as not his main concern.

So that’s why I started writing my own articles that advisors and other retirement plan provider could distribute to their clients and potential clients for free. If I built enough goodwill with these providers with articles that could help drum up business, then maybe I’d get it back in referrals. 10 years later, I’m doing ok.

The point here is that you have to understand what other people may think and when offering them something, what’s in it for them. It doesn’t mean they’re being selfish, but life is a game of give and take.

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The problem with consolidation in the TPA business

Every week, I check the headline on and the news part usually involves one or tow purchases of third party administration (TPA) firms by larger TPAs. It’s the nature of a very competitive business and with large TPAs wanting to be larger and smaller TPAs wanting to cash out.

While consolidation may allow these large TPAs get savings when dealing with other providers and becoming more efficient, it does have costs within the industry. One way is the loss of jobs for very experiences plan professionals. The New York area, for example, has suffered the loss of a handful of very well known and well run TPA firms. Heck, I had a friend in the business from my own village that had to move to the Midwest to get a good job as a plan administrator. Consolidation always decreases choices and less competition could lead to increased pricing even if fees have been going down for years.

While the TPA business seems to remain healthy, my concern is that while consolidation can be good for business, there are chances and reasons why it can’t.

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What Makes A 401(k) Plan Sponsor A “Mark” For Litigation

My latest article on can be found here.

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Most TPAs are in the administration business, some are not

I have a friend who is an insurance agent and she was looking for a new TPA (third party administrator) for her clients.

She previously gave work to a TPA that also happens to sell insurance and financial products (which is called a producing TPA). This TPA is known for pushing expensive insurance products and insurance company platforms for their daily valued plans (regardless of size). I know of a financial advisor who has a client who had a plan with this TPA who was led to believe that their plan had a $5 million life insurance policy when it really has a $3 million life insurance policy in it. Paging New York state Department of Insurance, anyone?

There are those TPA that sell financial products, there are some that sell insurance, and there are those that just administer and record keep.

This story reminds me of another producing TPA that is only a few villages over from where I live. I interviewed for an attorney position there around 6 years ago before my son was born when I was serving as the lead attorney for another New York producing TPA. The owner of this TPA said my TPA was not in the administration business, but in the asset gathering business. Looking back, it was kind of funny because this TPA was consistently butting heads with the IRS over these special trusts with special trustees for these defined benefit plan stuffed with life insurance policies. In addition, I once reviewed a plan of theirs when the plan moved over to my TPA. The defined benefit plan has a normal retirement age of 35! This was not the defined benefit plan for professional athletes, this was a plan for a food wholesaler. This was before the IRS instituted that any normal retirement age before 62 is suspect, so we didn’t take the plan over since I stated that the normal retirement age was not reasonable for that industry and was just used as a gimmick to have inflated tax deductions. In other words, it was a tax evasion scheme.

The lesson to be learned here is that there are some TPAs that are in the insurance selling business, the asset gathering business, and the administration business. Pick a TPA whose main business is plan administration.

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When I don’t get the gig

When I’m contacted by a plan sponsor needs help, I usually quote a flat fee and 9 out of 10 times, I’ll get the client. Price is rarely the reason why a potential client won’t hire me. Here is usually one reason why I don’t get hired: I’m cautious when it comes to self-correction.

What does that mean? It means that when a plan sponsor has a glaring problem for quite some time that takes place over a few years and involved a lot of participants and a lot of money, I will recommend that the plan submit the plan to get the Internal Revenue Service’s blessing through the Voluntary Compliance Program.

Case in point, I was contacted when I was at that semi prestigious law firm about a publicly traded bank with a big problem. It seems that it’s Big 4 auditors failed to catch a big problem with the 401(k) plan for about 20 plus years. It seems that while the plan in operation excluded bonuses from compensation, the plan document didn’t. Based on the amount of fixing the problem, I recommended that the plan should seek the IRS’ blessing. They found an ERISA attorney who said they could self-correct. It would have been a nice gig at the time, but I didn’t want to be the attorney who said they should have done self-correctionand the IRS would have had a different opinion on an audit.

There are times where you won’t get hired, but when it’s based on a plan sponsor not taking your advice, there is no loss there because you’re sticking to your guns and not lowering your standards.

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Retirement Plan Advisors Advantage

My latest newsletter for retirement plan providers can be found here.

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Advice For 401(k) Plan Providers On Hosting Events

My latest article on can be found here.

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That 401(k) Conference to hit Philly this November

That 401(k) Conference will be at Citizens Bank Park this fall. On Friday, November 9th, the most 401(k) advisor event will make its debut in the City of Brotherly Love.

As always, a 401(k) advisor can expect 4 hours of content from some of the most well known 401(k) plan providers, lunch, a stadium tour, and a meeting with a Philly sports great for just $100.

Plenty of sponsorships are available and start as low as $500. Contact me for more information.

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