They Say Their Plan is OK, But Plan Sponsors Usually Have No Idea

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

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Don’t panic if a provider you knows gets sued, but….

As a plan sponsor, you’re always going to run into another plan provider that is interested in picking you as a client. Plan providers can only grow their business by adding new clients, so it’s a part of the game.

As part of any client solicitation, it’s not unexpected that a soliciting plan provider will run down an incumbent provider especially if they’re getting sued. A lawsuit isn’t evidence of any wrongdoing and it’s pretty hard to find any large plan provider (especially plan custodians) who hasn’t been sued. Lawsuits don’t mean much as settlements because a lot of class action lawsuits get tossed before there is any settlement or verdict.

That doesn’t mean that you should ignore any news about litigation against plan provider especially when it’s something you can’t ignore like a lawsuit over stolen plan assets.

You should always be aware of what is going on with your plan providers, but the filing doesn’t necessarily mean that something is wrong.

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Don’t let the best employees be low in the pecking order

I’m a big fan of Survivor since day one. One of the more memorable seasons in the beginning was the fourth season on the island of Marquesas. Besides the first appearance of Boston Rob (who played his worst game), it was known for the first time were members of a dominating alliance defected to the other side and switched sides.

Two contestants named Paschal and Neleh realized in one of the immunity challenges what their place was in the dominating alliances pecking order. They realized that they were at the bottom and made the decision to switch sides.

Speaking as someone who has made some moves in my life, most of the time I make a change is when I realize how low I’m in the pecking order. Once I was working for a third party administrator (TPA) and I was the only ERISA attorney on staff. There were a handful of salespeople, conversion staff, administrators, and financial advisors on staff.  Based on my hard work and competency, one would think I’d be one of the most treasured employees, but I wasn’t. We had someone in charge who was threatened by excellent employees and that person championed the mediocre. We called that person, the chief operating officer. When I realized I was low on the totem pole and the chief operating officer was trying to find ways to attack me, I decided it was my time to go.

When you have great employees, you need to realize that they have feelings and egos. People want to be appreciated for what they do, whether it’s in salary or in commendations. You need to keep your best employees at the top of the pecking order because if they realize they’re low, they’ll go.

 

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Own Up To Your Mistakes

Years ago, I had to hire an out of town collection law firm to collect a debt from a client. The client didn’t respond to my lawsuit and I was awarded a default judgment against them.

The problem with hiring this firm is that since it was an older debt, the law firm was charging me by the hour. There was an associate attorney at the firm who was very good at billing. He would bill 45 minutes, thinking about how to collect the judgment. He would spend hours drafting court filings that were based on sample forms. Without warning, a law firm partner took over the case.

When it came time to try to collect my judgment, I was able to get some banking information to try to attach against the client’s bank account. I also provided the email address of a bank representative.

Rather than contacting the person I knew, the partner of the firm decided to get the information bank himself. He sent in the garnishment forms without consulting me. Of course, the name of the bank was incorrect as well as the address on the court approved garnishment forms. The law firm partners billed more than $4,000 for the preparation of the garnishment forms.

When I protested this error and my unwillingness to pay for it, the law firm partner complained about how much work him and his paralegals did on the garnishment forms. Rather than just apologizing for the errors, he was indignant. I always joked that law firm partners are never wrong, but it’s only a joke. I was ticked off that the law firm partner couldn’t admit his error and apologize for not contacting the representative of the bank I found.

As a plan provider, you’re going to make mistakes. The better you are, the fewer mistakes you make.  However, when you make mistakes, admit it and apologize and move on. It’s plain and simple.

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The issues with Open MEPs

Now that President Trump has issued an executive order calling for open multiple employer plans (MEPs) and possible Congressional legislation, there are still concerns and issues that I’d love for the Department of Labor (DOL) to resolve in their eventual regulations.

The first spot is who may be an eligible plan sponsor for a MEP. We know that with closed MEPs, you’re dealing with an association or a company linked with an association. When dealing with an Open MEP, who is going to be the plan sponsor. Is it going to be like a company created by a plan provider to be the plan sponsor like in the TAG case? Can it be people who are plan providers? Is there an exemption from the prohibited transaction rules that need to be implemented? My concern is that you get another self-described fiduciary expert like Matt Hutcheson who was a plan fiduciary for a few MEPs based on a reputation that was based on a PBS Frontline episode. The industry can ill afford to have ill-equipped or devious people serving as a plan sponsor or fiduciary of a plan.

I’d also like for the DOL to finally eliminate the doctrine of one bad apple spoils the bunch, the idea that an adopting employer who doesn’t abide on the compliance end, threatens the entire tax qualification of a MEP.

What the DOL will put out is a waiting game, but these are just two things I’d like them to handle.

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That 401(k) Conference Hits The Windy City

The date was Thursday, September 13th and the place was the friendly confines of Wrigley Field for the second edition of That 401(k) Conference.

The event was held in the Fannie Mae suite area behind center field where over 20advisors were treated to a bevy of great content and speakers from Millenium Trust, Brightworxx, Kravitz, ABG of Illinois, Starkweather & Shepley Insurance Brokers, and The Rosenbaum Law Firm P.C.

The highlight of the morning and afternoon was a guest appearance by Hall of Fame member Andre Dawson who talked to the attendees about his signing with the Cubs and signed autographs. A 90-minute tour of Wrigley Field was icing on the cake.

That 401(k) Conference will hit Citizens Bank Park next in Philadelphia on Friday, November 9, 2018. Tickets with special early bird pricing can be found at http://that401ksite.com/that-401k-conference/.

Sponsorships are still available.

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Great 401(k) Plan Features That Aren’t A Fit For Everyone

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

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My Opinion Shouldn’t Threaten You

Social media is an interesting dynamic, both in the positive and the negative. Thanks to social media, I’ve gone from an unknown associate attorney to a well, known national ERISA attorney.

One of the drawbacks I find in social media is the fact that many people just can’t handle the opinions of people they disagree with. A perfect example is my opinion regarding payroll provider third party administrators (TPAs). My opinion is that ADP and Paychex aren’t very good because they see TPA work as ancillary work to payroll and don’t have the attention to detail that any TPA needs.  It’s my opinion, not fact. It’s an opinion based on almost 20 years of experience. So it’s funny when you see people who work for a payroll provider TPA who feel the need to engage me and debate me. One time a plan sponsor who used one of these TPAs was trying to engage me in some sort of debate about my article and I had no interest. He thought his payroll provider TPA was doing a great job and I didn’t feel the need nor did I have the time to try to change his opinion.

My opinion is my opinion and it’s not going to be changed by someone who is debating me, I’m a Taurus as well.

I’m very opinionated and always have been and I’m sure that my opinions ruffle some people. I know that with the national conferences that don’t want to invite me.  But I’m too old to change and I think not being opinionated would take away my readership, which has always been a great base for referrals.

I think people trying to debate people they don’t agree with never works, especially when the opinions are based on reasonable facts. It’s wasted energy and in social media debates, often one side says something they’ll regret.

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That’s not the way to be in the administration business

I have comes across quite a few third party administration (TPA) firms over the years and 95% of them are pretty good. Even if they make mistakes, they’ll own up to them and they happen to make a few mistakes.

One thing I’ve liked with most of these TPAs is when they fire clients for being out of compliance and not doing anything about it. These TPAs know that a plan that didn’t make the required QNEC or won’t correct late deferrals are the clients that end up suing them when things go wrong.

So a few years back, I had a client with a lot of issues that required some voluntary compliance filings. The Form 5500 wasn’t done for about four years and the deferral tests were incorrect because the plan sponsor failed to properly code the employees.

So when I contacted the TPA because the plan sponsor had to make over $40,000 in corrective contributions, I was alarmed what this TPA told me. They disclaimed any responsibility and said that the failure of filing 4 years of Form 5500 was on the client and the plan sponsor was also responsible for coding the employees correctly. I was shocked that any TPA would keep a client that had such glaring compliance issues such as multiple failures in filing a Form 5500 as well as incorrect census information that any reasonable TPA would have contacted the employer to fix. The plan sponsor client is a medical practice with multiple employees including two doctors, all with the same last name as the name of the practice: any reasonable TPA employee would assume those employees were highly compensated employees?  It reminds me of the payroll provider who asked a plan sponsor to identify all key employees and the plan sponsor assumed a key employee was someone who was just key to the running of the business identified everyone as key and the plan was considered top heavy because the $30,000 a year cleaning person was identified as a key employee. In my opinion, it’s no way to be in the administration business.

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Is that 401(k) lawsuit streak going to end?

The landscape for the retirement plan business has radically changed since when I first started in 1998. Normal courses of business such as revenue sharing and non-transparency of fees were the order of the day. No one cared when the stock market was rolling in he returns.

The stock market in 2000 and the dot.bomb mess, as well as the financial crisis in 2008, brought 401(k) fees to the forefront because when 401(k) returns go south, issues regarding 401(k) plans go north. Thanks to fee disclosure regulations and litigation, the business landscape for retirement plans has radically changed.

The problem with 401(k) litigation is that we’re going to come to a point where it’s going to be overkill. Sometimes when I see some of the new cases propping up, I think we may already be there or close to there.

Cases like ABB and Edison International have been landmark cases when it comes to fiduciary responsibility; it’s corrected some big mistakes that have cost 401(k) plan participants dearly in the past. The problem is that with anything, oversaturation of 401(k) litigation is going to lead to overkill where some providers who aren’t necessarily doing anything wrong are going to get sued or already have been sued.

ERISA litigators have to eat too and I think they will eventually start cases on large to medium-sized plans where the arguments over plan fees are going to be over 3-5 basis points. Already we have one of the most noted value providers of index funds that have already been sued. Eventually, we are going to have litigation that is going to argue over pennies on the dollar that will eventually get tossed at the huge expense of ERISA litigators who took these cases on contingency.

Plan participants have been on a huge winning streak when it comes to litigation over the past 10 years. Like the golden age Celtics, Yankees, and Montreal Canadiens, all winning streaks come to an end. Thanks to fee disclosure and the narrowing 401(k) fees as well as those landmark 401(k) cases, big rip-offs of 401(k) participants are now fewer and far between.  I think eventually providers and plan sponsor are going to go on a big winning streak when this overkill in litigation reaches critical mass. You can’t get blood from a stone and ERISA litigators aren’t going to get big wins from plan providers and plan sponsors over 3-5 basis points.

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