Advisors Advantage

My newsletter for retirement plan professionals can be found here.

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A “Crystal Ball” On Life After The New ERISA Fiduciary Rule

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

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The Rosenbaum Law Firm Review

My latest newsletter can be found here.

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Things That Won’t Help A Retirement Plan Sponsor Limit Their Liability

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

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Avoid the leadership vacuum

For any presidential campaign, there usually is an ad about which candidate would you trust to handle the phone call in the wee hours of the morning. You want someone to answer the call instead of it just going to voice mail.

When dealing with an organization, one of the problems I’ve seen is a leadership vacuum where there might not be a decisive decision maker at the top or the top person maybe out for extended periods of time and there is no one to pick up the slack. Armies need generals and any organization needs leadership that they can answer to and will be responsible if something does go wrong. Any organization that I ever was involved with that wasn’t efficient in its work was because there was a lack of leadership either at the top or in the middle. Employees and workers need direction and when there is a lack of leadership, they are not going to get it.

A leadership vacuum means that work isn’t going to be efficiently done, mistakes are going to be made, and clients are going to be lost. Worst of all, the inmates are going to run the asylum and that always reminds me of the first place I ever worked at full time: it was four years of summer camp and that place has been out of business for 14 years.

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The TPA Asset Based Fee is a dinosaur

I have a good friend of mine that I’ve known for the last 18 years and he’s one of the most honest people in the 401(k) business and I love him even though he roots for the New York Islanders. He works for a third party administration (TPA) that does a great job in plan administration but I avoid referring them 401(k) plans because of the way they bill.

This unbundled TPA bills like many bundled providers bill their administration services, an asset based fee. I believe every provider should get paid nicely for doing good work,, but I don’t think a provider should get paid in relationship to something that doesn’t really have to do with their job. In my opinion, asset size has nothing to do with day to day plan administration, but head count does,

I would imagine a TPA has more work to do with a 100 participant 401(k) plan that had $2 million in assets than a 50 participant law firm 401(k) plan with $25 million. Before you tell me about custody fees, I know about them and this has nothing to do with custody fees, the compliance testing, accounting, and preparation of Form 5500 isn’t harder to do because a plan has more zeroes in its assets, its more difficult when the participant head count has more zeroes.

While the Department of Labor allows an asset base charge for the administration of a retirement plan, I believe the question of whether that prudent becomes a bigger question when the size gets larger and larger. I can understand small, bundled plans paying an asset based charge for a bundled provider, I can’t understand why that’s prudent when the plan starts hitting 7 figures in assets,

I believe an asset based administration charge for plans over $1 million could be another frontier in plan litigation especially when asset sizes doesn’t have much in relation to the cost of plan administration.

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Plan Fees Have Been Getting Lower

NEPC, LLC published the results of its 11th Annual NEPC Defined Contribution Plan and Fee Survey. Data shows that Defined Contribution (DC) plan record-keeping and investment management fees continue to decline.

According to the survey, the asset-weighted average expense ratio for DC plans is currently 0.42% versus the 2006 level of 0.57% when the first survey was conducted.

Some will say that this indicative of a race to the bottom for plan fees, but the survey isn’t that crystal clear. That 0.57% number was at a time when there was no fee disclosure regulation. It’s also at a time when plan assets are lower as this fee survey shows fees in relationship to plan assets. It’s also at a time when technology wasn’t as dynamic as it is now. We also know that fee disclosure regulation was going to have an impact on fees because fee transparency was going to spur competition on fees.

Time will tell whether fee disclosure and the new fiduciary rule will spur a race to zero, but the narrowing on fees can also be chalked up to lower costs because of better technology and a growth of DC plan assets.

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Experts say Trump won’t delay or kill Fiduciary Rule

Experts claim that a President Donald Trump is likely to let the new Fiduciary Rule go into effect in April without trying to delay it or kill it. If I’m a betting man, I think they’re right.

The rule goes into effect in April, just a couple of months after Trump’s inauguration on January 20th. The Fiduciary Rule has never been high on Trump’s campaign pledges and I doubt that he’s willing to bail out Wall Street on this since they weren’t too enthusiastic for his campaign. You know how politics go; you’re not going to help out people if they were slow to help you out.

Trump has a lot on his plate after January 20th. Changing or killing Obamacare and that Making American Great Again thing are far bigger priorities than a rule that most non-retirement plan people actually care about.

Then again, as far as experts, they can be wrong. Just ask President Elect Hillary Clinton.

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Rollovers are going to be a rough business

I have been saying all along that rollovers are going to be a very rough and difficult business after the new Fiduciary Rule gets final. You can just tell by the Department of Labor’s (DOL) stance in their Fiduciary Rule Q&A.

According to Q&A 14, even an advisor who is going to charge a level fee to meet the best interest contract exemption must get information on an existing plan in order to determine whether it’s in the best interest of the plan participant to rollover assets from that plan. Even if the advisor can’t get that plan information, they must seek out alternative sources such as the Form 5500 or a reputable benchmark to demonstrate that it’s in the participant’s best interest to rollover. While this documentation requirement is stated in the level fee provision of the Best interest contract exemption, the DOL reiterated that any Fiduciary seeking such best interest standards should engage in a prudent analysis of factors and considerations to show that the rollover is the right thing for the Fiduciary to do.

So the good old days where closing the case was all about filling out rollover forms, the burden is going to be on the advisor to demonstrate that a rollover is in the former participant’s best interest.

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Face facts: Retirement Plan Sponsors Only Seek Help When They Need It

When I was at that semi-prestigious law firm many moons ago, I developed this plan review called the Retirement Plan Tune-Up. I’d look at the plan document, plan design, costs, the Fiduciary process, basically anything that the plan sponsor can grow at me and I’d do it for $750.

When I started my own law firm, I kept that program and even had brochures about it. I gave speeches at some great 401(k) Rekon events to tout them as well and I’ll be honest, maybe I’ve done about 10 of them in 8 years. The fact is that most plan sponsors tune out the need to take care of their plan and usually only take care of it when it needs to. Plan sponsors for the most part are reactive rather than pro-active. They don’t understand the threats to liability as a plan sponsor until it happens to them.

I’m not trying to mean or to denigrate Plan sponsors. The fact is they’re busy with running their business and they don’t understand the nature of fiduciary responsibility and the continued need for vigilance. Some plan sponsors, but most don’t and that is always going to be an uphill battle.

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