Worst Retirement Plan Ever

In 12 years as an ERISA attorney, I have probably worked on a couple of thousand of retirement plans and if you ask me what the worst plan I ever worked on, it’s pretty clear.

I was perusing Brightscope.com and for the first time, I typed in the name of the largest plan (in assets size) that the third party administration) firm worked on. To no surprise, the plan got a 59. The only surprising part is that it was only 18 points less than the highest ranked plan in their peer group (77).

Problems with the plan? Low participation rate and an average account balance of $9,900 for 5,800 employees since the nature of the company is a publicly traded, employee outsourcing company. Brightscope states that the plan had high fees and boy they weren’t kidding. I remember when my old TPA switched the platform from Fidelity 278 to Fidelity 251 to get better revenue sharing funds. My old TPA who was also the registered investment advisor (RIA) told the client that the switch would cut their fees. What they didn’t say was that they were going to rake more in fees because of the increased revenue sharing that they weren’t disclosing.

Since my old employer based their level of service on the size of the plan, this client knew how to make demands and push buttons. There were plan designs on eligibility that were quite unique and they were constantly changing them in some misguided attempt to help them on their discrimination testing. I learned later that administrators who had handled the Plan were told that this client had to pass testing no matter what,

What makes this plan the worst plan ever? Years after I left, a financial advisor I knew visited the client and informed them that the fund lineup was loaded with high expense mutual funds and reiterated what was known publicly, that the TPA was being investigated for improper connections with the audit firm that they referred work to, which was the same audit firm that was auditing this plan. Rather than looking into the rather substantiated accusations and how they could save their participants thousands in fees, the executive vice president pledged his allegiance to the head of the TPA who was forced to retire only a few months later.

I have represented clients who had their defined benefit plans lose millions to Bernie Madoff, but this client was the worst because they knew of accusations of fraud in their plan and never bothered to conduct any investigation whatsoever.  A man may well bring a horse to the water, but he cannot make him drink.  A financial advisor may tell a plan sponsor how their continued use of a provider will incur liability, but he or she cannot make them change providers.