Don’t bill for someone else’s work

You’ve got a lot on your plate as a retirement plan provider and the last thing you need is more headaches. So don’t add to your workload and headaches by deciding to bill for the work of another provider.

I’m an ERISA attorney and if I refer a plan sponsor to a third-party administrator (TPA), I’m not going to bill for that TPA’s work. Your job is to provide the best service for your client, your job isn’t to be the billing office of another provider. Forget about the accounting aspects of it, what if the other provider doesn’t provide the work promised? Are you know going to have to refund money that was never yours, to begin with?

The road to hell is paved with good intentions and nothing good could come by doing another provider a solid by acting as their billing office.

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The Sample QDRO

It’s funny in a sense that the people who should be most experienced with Qualified Domestic Relations Orders (QDROs), many divorce attorneys, don’t seem to know how to draft a QDRO. They try to seek guidance from the folks who have the least amount of information about them: plan sponsors.

Rather than bothering your third-party administrator or an ERISA attorney, who might charge you for one, get a sample QDRO to get the ball rolling for the divorce attorney, the payee, and the alternate payee. If you need a sample QDRO, contact me, no charge.

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MIT folds in class action lawsuit

Kenny Roger’s “The Gambler” song has some great tips. You need to know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run.

MIT wisely settled a class-action lawsuit concerning their retirement plans and the relationship with Fidelity as a plan provider and Abigail Johnson’s role at Fidelity and as an MIT trustee. I knew a settlement was imminent when Johnson fought the attempts to force her to testify.

I don’t know the particulars of the MIT-Fidelity relationship, other than the fact that it looked bad on paper and some MIT officials said some things about the relationship in connection with fundraising that would give a bad impression at trial. The appearance of impropriety is enough some times.

We won’t know the details of the settlement until October.

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If you want it, ask for it

When I was a kid, I’d be passive-aggressive in the sense that I wouldn’t let people know how upset I was about things. Thanks to some age and maturity, I don’t have to be that scared kid anymore and not ask what I want.

While signing up a new multiple employer plan up with a pretty good third-party administrator (TPA), I asked whether I could work with a certain automatic rollover provider that I’m fond of. I was told by the TPA that they were fully integrated with another provider so that it was impossible. I pushed back, saying I liked this automatic rollover provider and that it was a better product for the participant and the advisor of the plan. Needless to say, the TPA said they were willing to use the other provider. I knew they would because it’s not like a TPA is making any money off any automatic rollover provider. You can ask and they may say no, but they’re likely to say yes if it’s not going to affect their bottom line.

People aren’t mind readers, if there is something you have in mind with another plan provider, ask them to consider what you want. Otherwise, you’ll never know whether you could have gotten what you wanted.

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Just because they say they’re good, doesn’t make it so

If people pass on enough incorrect information out there, you start to believe it. When I worked at that semi-prestigious law firm (sorry, Lois), we had a litigation partner that everyone told me was excellent. Being a naïve associate, I took their word.

I was told that he only picked cases that were sure wins. So when I had a personal litigation matter, I reached out. Rather than politely declining the case, he was really rude about it. Needless to say that after many years later and reviewing some of the cases since I left the firm, this litigator only picked winning cases because he had a poor track record in the close cases.

When it comes to working with other providers, make sure any recommendations come with something more than just fluff., If someone tells you how a provider is so good, they should be able to verify how good they are. Referrals and recommendations you get, need to be concrete because the last thing you need is to depend on a “superstar” who belongs on the bench.

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The good old days for advisors are gone

In the good old days of participant-directed 401(k) plans, a good chunk of financial advisors did very little work for the plans that they advised. Many of them sat back, collected their trail or asset-based fee, and maybe saw the client once a year. Thanks to changes in regulations and court decisions, the day of wine and roses are over.

Recent court cases make it far easier for 401(k) participants to sue plan sponsors. In addition, anytime there are poor market returns, it creates an incentive for plan participants to sue plan sponsors for breach of fiduciary duty. These cases have shown that many plan sponsors don’t do a very good job in managing the fiduciary process in developing an investment policy statement (IPS), reviewing plan investments against the IPS, and providing participant education.

While so many other plan providers tell me that they are jealous on how much advisors charge and how little they do, a financial advisor is an integral part of limiting a plan sponsor’s fiduciary liability and so many are underpaid for what they do. Sure I have found those advisors making 60 basis points on a $14 million plan and do nothing, there are so many advisors that understand their role and do a great job in limiting a plan sponsor’s liability, The fiduciary process of being a plan sponsor is an arduous task, so plan sponsors need to rely on someone and that someone is a financial advisor, Whether they serve as a broker, co-fiduciary, or an ERISA fiduciary, a financial advisor has a job to do. The days of showing once in a while offering no IPS help or participant education is slowly becoming part of the retirement plan past.

The day where an advisor can simply put a plan on a bundled platform and forget about the plan until the quarterly fee is paid is over. Financial advisors have to help the plan sponsors out to manage the fiduciary process. If financial advisors are not up to the task, then they should surround themselves with those that can like an independent ERISA attorney or a top-notch third-party administrator. Some advisors have sought out the advice of other advisors to offer a turnkey 401(k) platform and support.

Financial advisors can sit back and pretend the good old days are here, but they stand at the risk of losing business to those breed of financial advisors that know their role and will strive to fulfill it.

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Know why you hired them

As a plan sponsor, you have a fiduciary duty to hire competent plan providers to handle your 401(k) plan. So as part of that duty, it’s important to identify who these providers are, how you hired them, and why.

Why? Besides it being an exercise of your fiduciary duty, the fact is that I’ve seen on Department of Labor audits of agents asking plan sponsors and their counsel to ask who the plan providers are and what was the process of selecting them. That goes from the third-party administrator to as trivial as the custodian for automatic rollover individual retirement accounts.

So the more you know and can explain, the better off you are.

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Sometimes, the litigators want a piece of you

Many years ago, I represented a defined benefit plan sponsor being investigated by the Department of Labor (DOL). The DOL thought the plan sponsor had embezzled money from the plan because the deceased actuary never provided any valuation reports and he gave the advice to the owner of the company that it was no problem to write a check from the defined benefit plan to prop up another related company because the owners had the bulk of the benefit.

Based on the evidence (or lack thereof), I thought the plan sponsor should come to a deal with the DOL. I’m not a litigator and I wanted to recommend litigators I knew. However, the owner of the company had a relationship with a litigator that had no ERISA experience. They wanted to fight the DOL and I thought that was the wrong tactic. Let’s just say that I was pushed aside and 3 years later, the owner had to shell out $4 million to the DOL and agree that an independent fiduciary be appointed. The only one who made out on the deal besides the DOL was the litigators, who know how much the plan sponsor had to fork over in needless litigation bills.

Always be wary when litigators want to litigate with the government, resistance might be futile.

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More annuities in plans is a pause for concern

A growing number of U.S. employers are adding lifetime income solutions to their defined contribution (DC) retirement plans, according to the 2019 Lifetime Income Solutions Survey by Willis Towers Watson.

While I know the marketplace and the Department of Labor are considering adding annuities to DC plans. For me, it’s a pause for concern because of the role of insurance products in retirement plans. Insurance in retirement plans is like eating red meat, nothing wrong in moderation, but not many people will take that advice. Many insurance agents are more interested in the commissions and less interest in the relationship and my concern is that there will be some high-cost annuity products making its way into retirement plans. Just my two cents.

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401(k) Plan Sponsors: Let Your Providers Do Their Job

My latest article for can be found here.

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