The Legend of Fred

When your practice is successful as a retirement plan provider, you’re going to want to hire people who work outside the retirement plan business to help you manage your firm because the day to day running of a business doesn’t just need someone who is experienced about retirement plans. Hiring a chief operating officer or office administrator is extremely important for growing any business and you’re going to want someone who is experienced in helping run a business.

I’ve worked for a number of businesses over the years and the most smoothly run businesses are usually the ones where the owners seek outside help in many of the important business functions like practice management and Human Resources,

When you hire someone to help with the day to day running of the business, you need someone who has the experience in dealing with the nuts and bolts rather than someone who likes to talk and write about practice management without actually practicing it.

In the 12 years I worked for someone other than myself, I worked with hundreds of different employees including bosses, people on my leadership level, and those who worked below and I have to say the co-worker I liked least was the law practice administrator at a law firm I worked at, called Fred.

Fred was the law firm administrator or at least he claimed he was. Other than reminding attorneys to submit their time sheets, he did very little in helping the managing attorney run the firm. He tried to act as the gatekeeper to the managing attorney, but all he was, was a snitch. I remember him telling me that I should send a proposed client solicitation letter to him so he could edit it and send it off to the managing attorney so it would help with the process. So I drafted a solicitation letter to Fred and he never edited it, he actually gave it to the managing attorney and I had to get an earful from her on how bad it was. I remember Fred once telling that my goal of starting a national ERISA practice is one of the ones he was concentrated on expanding for the Firm in 2007. I’m still waiting on him in 2916 to help.

My biggest gripe about Fred is his use of the marketing department to publish his own articles. Now I’d write article for the firm to get clients or build relationships with plan providers. In the two years I was there, I’d write three articles, which is less than my haul at my practice in a week. The problem was that not only did my article have to get approved by three different partners. I had to deal with the fact that Fred was clogging the marketing department with his articles. The problem with his articles is that it had to do with law firm management and that’s not one of the businesses that my law firm was in. We were in the business of law and his articles on law firm management weren’t going to draw us a dime. Fred was using law firm resources to prop up his own image as some sort of law firm management guru, which he wasn’t. No one in the firm or the marketing department would say anything because he supposedly had the managing attorney’s ear. He’d write an article a month, which was wasting law firm resources that could have easily been spent publishing articles from attorneys that could help generate business.

The production of his articles ended at some point and I think it coincided with the fact that I started my own firm and I would write articles lampooning what he was doing. I knew he was reading my work because he was accosting members of the marketing department, accusing them of egging me on in my articles which wasn’t true because I don’t need any help in getting egged on. Needless to say, Fred moved on for that law firm, and of course, moved on to a larger law firm where he tweets articles he doesn’t write and he’s not misusing that law firm’s resources to publish his articles.

The point is that you need to hire the best of the best to help your practice, not some narcissist who thinks they’re a celebrity in their own right when all they are is a fan of the concept of practice management without practicing it.

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Sometimes it’s about control

As a retirement plan provider, you meet a potential client and you just do so well in the meeting that you think there should be no way that you’re going to lose this prospect. Yet you get the call that a competing provider got the job and you’re just shocked that you lost to that person.

Sometimes you lose because of all the decision makers you talk to, it might be one decision maker that felt the need they had to exercise control. They weren’t concerned with picking the best provider for the plan sponsor, they were just interested in flexing their muscle and picking whom they wanted to pick.

When I hear about a plan provider flabbergasted that they weren’t selected in a process they thought they won, I always relate a story where I say I was the most insulted in the 18 years of being an ERISA attorney and it shows you the essence of someone wanting to be in control.

I’ve told a story quite a few times and including in that Kindle book a few dozen of you actually bought. I was working at that semi-prestigious law firm as an associate and I was asked by the human resources director to look at our 401(k) plan.

Our 401(k) plan despite having an ERISA practice had one of the worst plans I’ve seen. The human resources director was a plan trustee and decision maker except it didn’t appear she made a decision in 10 years because the plan had no financial advisor, no investment policy statement, no review of fees, no education to plan participants, and no change of investments for 10 years,

I told her the first thing she should do is find a new financial advisor. With my many contacts in the business, I gave her a list of 2-3 advisors to contact. Of course she hired the advisor that the Fidelity representative in the area (who I recommended the human resources director speak to) recommended.

The human resources director and the new financial advisor told me up and down that they were happy with the current third party administrator (TPA) and I was fine with that. The Fidelity representative was there when needed, I thought. Anyway, the human resources director finally discovered the plan had revenue sharing and flipped out. So without consulting me or contacting me, they went through a process to replace the TPA with the advisor making recommendations. Well, they selected a bundled insurance company provider as a TPA and it certainly wasn’t Fidelity despite the representative’s help in getting the advisor that gig.

I was terribly offended because I thought being the in-house 401(k) expert, I should have been consulted because I believe you should always get an insight from the expert.

I got the last laugh many years ago when another trustee from the law firm called me years after I lefy, asking to help the plan go through a huge error caused by that insurance company TPA. I was already to go in and help fix the mess of that 401(k) plan again until the human resources director (after having been lambasted over this for the last 6 years by me) put an end of it. Again, sometimes it’s all about someone wanting to exercise control whether they are the right person to have control and regardless of whether they make the right choice or not.

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Who is the biggest 401(k) Recordkeeper and what really matters

A few weeks back, I wrote an article about 401(k) hustlers you should watch out for and I mentioned the caveat of using a payroll provider as your 401(k)’s third party administrator (TPA). I posted it on LinkedIn and someone commented that they would want to use a payroll provider TPA especially when they were the biggest TPA in the business. If you looked at the profile of the person who commented, you’d find out that he actually worked for that plan provider. Kind of like me saying how The Rosenbaum Law Firm is the #1 ERISA National Law Firm out there without recognizing that I work there.

Anyway, I looked at the 2016 PLANADVISER Recordkeeper Services Guide, which does a great job of breaking down who are the biggest TPAs out there by number of plans, participants, and assets under management. So that person who commented on LinkedIn might be happy that his employer administered the most defined contribution plans at 72,000, I think there are some data in the survey that would put an asterisk on him claiming they were #1.

While the payroll provider has the most plans, they weren’t even in the top 20 list of largest TPAs in assets under administration and what I think is the most important survey, they weren’t even in the top 20 list of TPAs in number of participants. So that means they handle the most plans, but they handle plans of small employers perhaps companies with only a handful of employees. While some in the payroll business will say that’s what happens with payroll provider TPAs, their biggest competitor is #3 in the list of most plans under administration, they are #20 in plan assets and #18 in number of participants.

Based on how I look at who is bigger, I think of plan participants because larger plans have more intricate plan designs especially when it comes to important issues like new comparability allocations and safe harbor plans. Small plans have issues too and you can certainly look at my half dozen articles out there why you shouldn’t hire a payroll provider TPA.

As far as these surveys, it’s great to know who are the biggest providers out there. However, as a plan provider, selecting a provider just because they are the biggest is absolutely a bad idea. While you should certainly avoid a TPA that only handles a dozen plans, selecting a plan provider just on size is a recipe for disaster. Selecting a TPA should be based on fit and the plan sponsor’s needs in terms of plan design and size. Sometimes, a 1-2 person plan with a safe harbor design is a good fit for a payroll provider because they’ll have a tough time in screwing up the administration. So these surveys are great insight, but not a laundry list for plan sponsors to pick a TPA because there are dozens and dozens of great TPAs that aren’t on that list that would probably be a better fit.

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401(k) Sponsors Say Their Plan is OK, but They Really Have No Idea

My latest article on can be found here.

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Avoid the Walter Principle

Since I’m a big fan of business and human interactions, I’d love to throw out another management principle I’ve thought about based on my work experience working as an employee for both third party administration firms (TPAs) and law firms.

I’ve worked as both and employee and an employer and I’ve worked as a union lawyer. I have empathy for both sides because I see what they go through, the employer-employee relationship is a constant struggle in the sense that I’ve never met an employee who thinks they get paid too much and I’ve never met an employer who thinks they pay their employees too little.

I always joke that I would rue the day I’d have to hire an employee because I was an employee once too. I say that because I look at my track record as an employee. Lots of job changes and the problem is that I had the arrogance to suggest that my employers didn’t know what they were doing and I was right most of the time. That being said, my biggest problem is that I never felt I got the appreciation as an employee that I deserve and when I think of employees who didn’t get the recognition and appreciation that maybe they were entitled to, I think of who the Walter principle is named after.

People are very sensitive in nature because they have feelings and based on who they are, they can take any slight as some sort of insult even if that’s not really the case. When I worked for a TPA, I worked with a paralegal named Walter. While some may consider it a negative, Walter had no filters, he’d tell you exactly how he’d feel about you. What worked well with someone like me who doesn’t have such a huge ego, that didn’t necessarily work well with other people.

When I first met Walter, he was at the end of restating all the plan documents for the laws that had the acronym of GUST. I was hired as another attorney while there was a head ERISA attorney whose compensation was a percentage of the legal document billables. It was really known from the get go that adding me to the mix was that Walter or the head ERISA attorney was going to get the ax.

While Walter was a paralegal, he knew more about plan documents that the top ERISA attorney, I was even amazed by the attorney’s lack of knowledge especially as it pertained to something as small as the safe harbor plan rules. Walter was a workhorse, he told me how he spent 10-12 hours a day churning out plan documents.

Walter told me a story that pertains to the very concept of the Walter rule. Walter was a salaried employee and there were times he would stay way past the quitting time of 5:30 pm, sometimes ending work at 9 pm. So the chief operating officer of the TPA who had no empathy for any employee asked Walter one day why he was leaving early. Walter wasn’t feeling particularly well and the COO stated that the office hours were 8:30 am to 5:30 pm. Walter said that he was staying at work until 9 pm most nights and the COO stated that office hours were 8:30 to 5:30 pm. Needless to say, Walter never stayed working after 5:30 pm again.

When I replaced the head attorney seven weeks after arriving, it was an absolute disaster because there were so many outstanding inquiries and so many plans that weren’t submitted. Thanks to Walter’s help, we survived. So the next holiday party, the boss lauds me for my work in navigating the legal department without any issues from the Internal Revenue Service. The boss makes the fatal error of not thanking Walter specifically even though he mentioned the legal department. So for the rest of the party, Walter was upset because he felt he deserved some of that recognition. He eventually got furious and claimed that part of the clock I got as a Managing Director of Legal Services belonged to him. Again, Walter had no filter and I should have expected that instead of being angry at him. He no showed the next day as I was starting a new project to get some ancillary plan amendments out. I took at what he did as a personal insult instead of thinking about his perceived slight at not getting recognition, I took what he did personally even though he was lashing out at the bosses who consistently ignored him and he never forgave them for cutting his salary after I became the top ERISA attorney. When they wanted to let Walter go after the restatement process was over, I didn’t protest even though I got no raise for taking on all his work.

The Walter principle is ignoring the needs and feelings of your employees and taking them for granted. Every employee has his or her own little quirks and nuances and sensitivities. Employees are human beings and they want to be appreciated. Appreciation isn’t all-just about pay and benefits, sometimes it’s as little as a nice word of appreciation. A simple thank you goes a long way because no matter the position, an employee wants to feel appreciated. Avoid the Walter principle of taking your better employees for granted.

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The IRS Voluntary Compliance Program Is Like Your Parents

As a child, you’re usually told by your parents that they just want to hear the truth and that telling the truth is going to carry a far less punishment than if you lie and try to hide whatever bad thing you do.

The Internal Revenue Service (IRS) can act as parents when it comes to retirement plans as it pertains to the Internal Revenue Code, while everyone has the fear of the IRS, like people do with their parents, they just want the truth too. Over the past 18 years in practice, I’ve noticed the IRS’ desire for plan sponsors to proactively fix any plan errors as they keep on making their Employer Plans Compliance Resolution System (EPCRS) easier for plan sponsors to use. The IRS has reduced the presumed penalty amounts that they now call a fee. They have produced model forms that make submissions easier for us retirement plan professionals.

The IRS when it comes to compliance, understands that retirement plans will make mistakes and their voluntary compliance program is the avenue where they would like to see plan sponsors just fess up voluntarily,

IRS compliance is essentially the carrot and the stick. The carrot is the EPCRS. Plan sponsors who identify plan errors will be wise to take the carrot or they will suffer the consequences of the stick. The stick is the use of plan audits to discover plan errors. If an IRS auditor discovers a plan error on their own, they aren’t as forgiving as the EPCRS. Penalties for plan errors discovered on audit are way more than anything a plan sponsor has to shell out in legal fees and the EPCRS Program fee if they corrected the error on its own. We all love honesty; the IRS does too. Hiding plan errors instead of voluntarily correcting them is going to be far costlier when discovered by the IRS on their own.

Plan sponsors should treat the EPCRS as a confessional booth where they could confess their “sins” as a plan sponsor when it comes to Internal Revenue Code errors and be done with it rather than the almighty IRS swooping down and punishing the plan sponsor for those sins.

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The Problem With The BIC

The biggest hallmark for the new Fiduciary Rule is the best interest contract exemption and the need for brokers to get those signed with their retirement plan and IRA clients. Getting legalese written on paper isn’t going to be such a big deal or a getting wet signature for the client. The biggest problem of it all is that the only way to determine what investments are actually going to be in the best interest of clients is that it’s going to take litigation to figure it all out.

I always say that I wanted to be a constitutional lawyer until I took constitutional law and found out it was really only words. There was this whole idea of protected classes and the different levels of scrutiny: strict, intermediate, and rational basis. 20+ years later, I still think it’s only words.

That’s how I feel about the best interest contract. In an environment that will still allow commissions and still allow the sale of proprietary products, what will constitute investments that are in the best interest of the client is up for debate. So the problem is that courts are going to end up being the arbiter of what’s in the client’s best interest because there is no history behind a new regulation. This new Fiduciary Rule is unchartered water for all of us, so it’s going to be trial and error to figure out what’s in the best interest of the client and what’s not. Unfortunately it’s going to take a lot of legal bills for all of us to figure it out.

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Some Brokers Will Leave, But Not Like What They’re Saying

Experts saying how many brokers are going to leave the retirement plan business reminds me of the radio report that Henry Hill heard in the shower about the Lufthansa heist, in Goodfellas. Like the loot stolen in the heist, the number of brokers that these experts are claiming will leave the retirement plan business is just getting larger and larger. Some say 50,000, others say 100,000 and some say 150,000.

The funny thing about these numbers is that they’re not grounded in fact. They are pie in the sky numbers and it’s human nature to proclaim you’ll do something and not do it when the time comes. People are always brave when they don’t have to act. But when push comes to shove, most of them won’t be so brave and decide to leave the retirement plan business.

I know how to brave until it’s time to act and you fold. When I working for a third party administrator; I felt tremendously underpaid when compared to how much my predecessor, who had receive a percentage of the billables was receiving. In the end, the reason I was underpaid is that when the boss gave me the promotion, he only gave me a $5,000 raise and I should have asked for the $25,000 I was expecting. So every year, we’d fight about an a salary increase because I always felt I was chasing that big raise I should have demanded the beginning. So one year, my boss wasn’t going to give me the $10,000 annual raise I’ve been asking every year and had received. So I told him I was leaving. I packed up my stuff and was ready to go. Of course, I didn’t leave, I had an infant and another child on the way and my boss didn’t want me to go. So I didn’t leave despite my statement that I would and my boss ended up doing the right thing and giving me the raise I wanted and then some.

The point here is that brokers are very upset with the Fiduciary Rule and they should be because the new standard they’ll have to meet is certainly going to cause them to lose revenue. Will that cause them to leave when the new rule finally does go into effect, probably not. Despite what they all say, there is still enough money to be made working with retirement plans because the registered investment advisors have been doing it all along as fiduciaries. People are angry and they say things when they’re angry that they really don’t mean. When push comes to shove and they will have the choice to leave, they won’t. I know because I was in the same shows myself over10 years ago.

Brokers will leave the business because of the Fiduciary Rule, but not the pie in the sky numbers that everyone is predicting.

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State Run IRA Programs Can Actually Be An Opportunity for Plan Providers

A few states including California are going into the retirement business. While ordinarily competition in the shape of a state government is cause for concern, I believe that it’s an actual opportunity for both third party administration (TPAs) and financial advisors.

California Governor Jerry Brown just signed California Secure Choice into law that will enroll employees who don’t have access to a retirement plan at work to be enrolled into this state run IRA savings plan, which many other states are now pursuing thanks to Department of Labor guidance allowing it.

The California run IRA will require all businesses with at least five employees to participate if they don’t already offer a 401(k) or other retirement plan for their workers. The requirement is expected to start in 2018 with businesses that have 100 or more employees, and phase in smaller businesses over the following three years.

Many plan providers will think this is a bad thing, but I do believe it’s an opportunity. If a company in a state offering the IRA program doesn’t decide to offer a retirement program, they will have to be part of the state program. While I think Individual Retirement Accounts are great, they are no substitution for a 401(k) plan especially when it comes to putting away as much money as possible into a retirement account. The California IRA program will not allow any employer contributions, which is another strike against it when compared to 401(k) plans.

I believe that when offered with no choice whatsoever to enroll in the IRA program, many employers will want the choice of offering a retirement plan of their own rather than dealing with government because despite the political nonsense of this Presidential campaign, people do have a libertarian bent when it comes to government handling their retirement money.

I think retirement plan providers should look at the different state program and see if there is an opportunity to market companies who may find themselves having their employees being automatically enrolled into a state program.

While these small employers maybe too small to market to, I believe there are novel approaches in marketing to the micro 401(k) plan market whether open multiple employer plans will be allowed again or not. Always feel free to contact me with questions, never a charge for the call or email.

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Your Emails Shouldn’t Be Like Hotel California

I write a lot because social media gets my name out there at a much lower cost than hiring a public relations. director. I know because I’ve been there and done that. I write articles, I blog, and I started this crazy website.

Ever since I started my practice 6 years ago, I have two email newsletters sent out to all my contacts including plan sponsors and one geared towards financial advisors. Over time, I’ve gained contacts and lost some. I think my latest number is 12,000 subscribers and maybe I get a 20% open rate for my emails.

The most important thing about emails is that it’s through Constant Contact, so there is an easy unsubscribe button. I understand people’s time is limited and maybe they don’t have time to read my emails and I understand that. I don’t take offense when people I’ve networked with or worked with in the past decide to unsubscribe. It’s not personal, it’s business.

When you network and you meet people through LinkedIn, I assume that I’m going to be added to their mailing list. I assume that because that’s what I do. From time to time, I’ll check the emails as a courtesy and I don’t unsubscribe from these emails even for the financial advisor that asked me to do an online meeting with her 5 years ago and has done nothing with me since. Retirement plan business is a relationship driven business, so I don’t want to offend anyone or hurt their feelings.

That being said, if you send emails out, have an unsubscribe button. This isn’t organized crime or my old synagogue; people have a right to quit. If they don’t want your emails, they should have the ability to unsubscribe. If you don’t offer that ability, then you’re going to peeve a heck of a lot of potential clients and fellow plan providers.

I’m certainly passive-aggressive when I state that I have two financial advisors who consistently barrage me with emails without unsubscribe buttons. It wouldn’t be so bad to get an email now and then, but a daily email? I have one financial advisor who sends me 3-4 email updates a day. I don’t have the heart to tell them to stop bothering me, so I’m partly to blame for not setting them straight.

Your emails aren’t the Hotel California where people can check in, but never leave. This isn’t some cult; you need to let people have the opportunity to opt out of receiving your emails.

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