401(k) Plan Sponsors Need To Read This Article!

My latest article for JDSupra.com can be found here.

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You see how large 401(k) providers can treat their employees

I love Clint Eastwood movies and one favorite is “In The Line of Fire’.  John Malkovich is playing a wannabe Presidential assassin named Leary and Clint is playing  Frank Horrigan, the Secret Service agent who is trying to catch him. For me, my favorite scene is when Clint and John Malkovich are on the phone and John calls Clint’s character a friend.

Frank Horrigan: I know who you are – Leary.

Mitch Leary: I’m glad, Frank. Friends should be able to call each other by name.

Frank Horrigan: We’re not friends.

Mitch Leary: Sure we are.

Frank Horrigan: I’ve seen what you do to friends.

Mitch Leary: What’s that supposed to mean?

Frank Horrigan: You slit your friend’s throat.

While not the same thing is slitting a friend’s throat, it is amazing to me how large 401(k) providers handle the 401(k) plans of their employees. I can attest that as someone who worked for a third party administrator once, I can tell you that our 401(k) plan wasn’t very good. It’s kind of like the old adage about the cobbler’s children having no shoes.

There have been several large 401(k) providers who have been sued over their 401(k) plans. While a number of cases are outstanding at this moments, there have been several that have forked over millions as part of a settlement.

If these large plan providers overcharge their own employees, does that mean they do it for their “real” clients? That’s not for me to say, that’s for an independent review to find out.

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The Plan Sponsor may not see how great you are

Aside from my children and my wife, my favorite person of all-time was my grandmother Rose. She was the most selfless person I ever met, who was full of life, and love for family. When my grandmother decided she would move upstate to live with my aunt, she started cleaning out her apartment. She put her trash on the side of the street for sanitation pickup and she was amazed that people on the block were looking through her trash. She said: “what do they think I threw out, gold?”

It was a funny line, but I think my grandmother didn’t understand that to some, her trash might be gold.

As a professional plan provider, we usually think we’re great and we’re stumped when a potential client cherishes an incumbent plan provider that we know is no good and we’re dumbfounded by it. It’s human nature to question what a plan sponsor could see in such a plan provider, but we see this all the time whether it’s business or in a family. What we may think is trash is someone’s gold and what we think is gold is someone else’s trash.

I worked for a third party administrator, where the chief operating officer would champion some administrator or actuary or salesperson as a superstar. Theynever were a superstar, but since this fellow cared less about good administration and more about paying employees on the cheap, they were his superstars.  He would tell me how he got an actuary for a $75,000 salary; the actuary wasn’t worth $75,000 after he was woken up while he was sleeping at work.

I remember when a relative of mine dated someone she unfortunately married. I would hear my mother tout that he was a businessman. Dropping out of a community college, operating a hot dog stand at a flea market, and owning a dry cleaning store that did none of its dry cleaning doesn’t make a businessman. 30 years and 3 careers later, the jury is still out. But some people have such wacky (we think of low) expectations of their plan providers, that no matter how great you are and how bad the incumbent is, it’s not going to change.

It’s like the Olive Garden. Having grown up in such an Italian-Jewish neighborhood such as Canarsie, Brooklyn who all moved where I live in Oceanside, Long Island, I hate the Olive Garden. When you grow up with great Italian food, you find Olive Garden an affront because it tries to be the McDonalds of Italian food. Some people out in the Midwest where there are not many Italians may think the Olive Garden is the greatest thing ever. I’m not going to debate someone who loves the Olive Garden because you can’t properly debate opinions.

The lesson here is that there are sometimes; you’re not the answer because the plan sponsor loves the plan provider. Maybe the plan provider is a relative; maybe the plan provider went to the same college as the owner of the company; maybe the plan sponsor likes to surround himself or herself with incompetent people to make himself or herself competent (that TPA COO did that).  Whatever the reason, it’s a waste of time to crack that nut.  Just remember you’re not crazy, but maybe the plan sponsor is.

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That 401(k) Conference debuts at Citi Field

The crazy idea of starting another 401(k) Advisor Conference plus adding some unique elements made its debut on June 7th at Citi Field.

That 401(k) Conference debuted with some great presentations by Kravitz, Millenium Trust Company, Alliance Pension Consultants, Oppenheimer Funds, Millennium Investment and Retirement Advisors, Principal, RPG Consultants, Colonial Surety, Unified Trust, and Bright Worxx. The event was also supported by great sponsors such as Associated Pension Consultants, John Hancock, Lincoln Financial, Cohen & Steers, PCS, TMI CPA, P.C., and Paycor.

The highlight of the event was the Citi Field Stadium Tour and a meet and greet with New York Mets Hall of Fame member Dwight Gooden.

Great content, unique site, great bonuses like Dwight and a stadium tour is just one way that That 401(k) Conference can stand out. For $100, I’m sure most advisors thought they got their value.

As with any inaugural event, most things worked and we’ll add somethings that might work better in time for the Chicago event in September.

That 401(k) Conference will next emanate from the friendly confines of Wrigley Field on September 13th. There will also be a game outing, the night before on September 12th. Tickets for the September 12th game and the September 13th conference is available now.

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How Plan Sponsors Can Have A Good 401(k) Plan After The Long Run

My latest article on JDSupra.com can be found here.

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Tell your TPA what you’ve got

As a plan sponsor, you really need to let your third party administrator (TPA) what you have in terms of retirement plans and interrelated businesses.

Correct compliance testing is dependent on the TPA getting all the information you need.  I’ll never forget when at a TPA I served as head ERISA attorney, we working on a defined benefit plan for a business owned by a famous politician. We did such a great job that they wanted us to handle their 401(k) plan. Of course, we asked: what 401(k) plan? Not letting a TPA know all about the retirement plans and businesses you own will make compliance testing meaningless because they’ll be wrong. The problem with incorrect compliance testing is that it may negatively impact the tax qualification of the plan, but it’s also something that may not be corrected for a number of years.

So it’s extremely important that you tell your TPA everything in connection with your plan that is relevant.

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Learn to say no

I always believe that regardless of whether it’s business or in regular day-to-day life, that you can’t be everything for everybody. Being honest with that is only half the battle.

A lot of times, I met folks who are interested in starting a registered investment advisory (RIA) firm.  I get calls for my insight on the retirement plan business, as well as my work in drafting advisory agreements for RIA firms and their retirement plan clients to comply with the fee disclosure regulations (which I do for $1,500 on a flat fee basis, cheap plug) here.  I also get asked whether I could work on their RIA registration or whether they should use one of those businesses that only deal with RIA set-ups and registration. Looking at my experience in doing that and comparing myself to these businesses, I politely tell them that these firms would be a better fit for their RIA registration. It’s not that I couldn’t do the work; it’s just that the fees and length of time in doing the work is probably better by using a business that does nothing but RIA registrations. Perhaps these new RIAs will be a client of mine, perhaps not, but at least I was honest with them.  Again, you can’t be everything for everybody.

I have a friend of mine who works for a great third party administration (TPA) firm in the Northeast. The only problem is that when it comes to smaller plans, the fees are high. Nothing wrong with that, except if you are a smaller plan and were dead set on getting this TPA to handle your plan. Anyway, this salesperson met one of the accountants he was familiar with. The accountant had a lot of opportunity in single employee, defined benefit plans. With a $4,000 minimum for the actuarial work, the salesperson told the accountant that they were better off finding another firm for these plans at less than half what his minimum fee was. Again, you can’t be everything for everybody.

Contrast this with a case at my old TPA. We had a 401(k) plan where 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 was a problem from Day 1, but we took the case because we had a great relationship with a southern RIA firm. So this client was a problem from Day 1, but they 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 advisors asked me about our experience with it and I was honest, I said we had a couple of those cases. Our lack of experience showed up in some of the presentations to the client (of which I was not invited to attend). Story cut short, our lack of knowledge was exposed and not only did we lose the client, the RIA who referred us the client lost the client as well.

Regardless of whether it’s a TPA, RIA, and an ERISA attorney, you know you found an honest provider when they basically tell you that they can’t handle your plan because the plan is not a right fit for their book of business. As a plan provider, you also need to be honest and forthcoming when you can’t do the work. Know your limits and let the potential clients know what they are.

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Don’t shrug your shoulders

One of my pet peeves out there is when you give a list of complaints to a business or an organization and they give the proverbial “shrug of the shoulders”. The “proverbial shrug” is basically the business or the organization telling you that they aren’t going to merit a discussion of your complaints because like what Jeff Probst tells losing reward challenge participants on Survivor, they have nothing for you.

I always say that everything in business is about communication because it’s a connection business.  Having empathy for clients who aren’t happy with your service goes a long way. Saying that you understand their complaints and that you will try better the next time goes a long way.

Taking the path that apologizing in any way possible is like admitting to a criminal act is only going to exacerbate the tension with the client. Whether the client’s gripes are justified or not (and many times they aren’t because it may contravene the law), they want to be heard.

I’ve learned as the older I get that when I’m unhappy with something, I’ll complain and let my feelings known. When the business or the organization I’m dealing with, tells me that it doesn’t care by not even trying to address a problem, I’m going to be looking for someone else to work with.  

People sometimes complain and all they want is to be heard and acknowledged, they don’t even want an apology. Shrugging your shoulders isn’t the way to go.

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My biggest pet peeve on networking

One of the great joys of my practice is networking with other plan providers. I enjoy meeting people and meeting advisors out there that I can help, most times at zero cost.  The retirement plan business is a relationship-driven business, so it’s great to create new relationships with plan providers and maintain old ones.

My biggest peeve when it comes to networking is when it’s clear from the beginning that the person isn’t interested in developing a networking relationship but just wants to sell me something or sell something to my clients. I understand like for example on LinkedIn that you try to develop relationships that will help your business. Yet when it comes to networking, I don’t try to sell my services. People know what I do and when it comes to hiring an ERISA attorney for themselves or to refer one to clients, they’ll think of me because I speak in English (not ERISAese) and I charge a flat fee. So while I don’t try to sell my services immediately, I hate when someone connects with me and say itsfrom the get-go that they want to sit down with my clients. Most of my clients come from referrals from advisors and all my clients have advisors, so there is a limit on the business that I can refer and if I’m going to refer an advisor, it’s going to be someone that I’ve known for a long time. I don’t mind connecting with people, but let’s develop a relationship before you try to sell me or my clientssomething.

It reminds me of when I first started networking when I worked for that semi-prestigious law firm on Long Island. I would network and I would run into some insurance agents and instead of wanting to develop some type of networking relationship, they wanted to sell me life insurance. They would promise how they could help me network, but I always thought that someone who wants to immediately sell you life insurance isn’t going to help me network.

Networking is about developing relationships and I think someone who is so upfront about wanting to sell really isn’t interested in networking.

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The MEP isn’t the end all, be all

I have been hearing a lot from advisors and plan providers about multiple employer plans (MEPs) with the idea that open MEPs where a plan where the adopting employer have no commonality, but be treated as one plan for ERISA purposes maybe be back in business through a change in the law.

While it’s been 6 years since the Department of Labor opined about their ideas regarding MEPs in an advisory opinion, many of us are still hoping that they’re allowed again especially when states have been allowed to offer IRA products and programs that are far inferior to what private sector plan providers can offer.

While I love the idea of MEPs, they aren’t the perfect fit for every plan sponsor out there. There is the surrender of control (with the liability that goes with it) to the MEP plan sponsor where there maybe plan provisions that the MEP may not offer. Most importantly, the idea behind the MEP is that it’s a cooperative where small plans are grouped together with better pricing and better share classes. Yet, most of the years in the business, I’ve seen too many high cost, insurance-based 401(k) MEPs. High costs MEPs defeat the purpose behind the MEP.  If you want to talk about high-cost MEPs, look no further than the $1 billion MEP that sought the advisory opinion that sunk Open MEPs for everyone.

Open MEPs aren’t the solution for every small to medium sized plan sponsor. Plan sponsors need to identify the cost of joining a MEP and whether the cost is far less than what they have on their own. I’ve seen too many MEP adopting employers that might be better off with their own plan.

Open MEPs can be a great thing if priced accordingly, but it’s still not the solution for every small plan out there.

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