The Rosenbaum Law Firm P.C. Blog

When I was 13 and I had my Bar Mitzvah, I plucked down about $2,000 in 1985 money for a state-of-the-art Apple IIe with a monochrome monitor. One of the first pieces of software I bought was that top desktop publishing software known as Print Shop. I bought it through mail order (yes, there was life before Amazon.com) for about $30 and I remember that my wealthy uncle bought the very same program for my cousin for about $60. My uncle really thought nothing of the fact that he bought the very same program at double the price I paid. Sometimes people like to overpay.

I have a mantra that I hate to pay retail. I love a good sale. Yet there are some people who thumb their nose at paying at a discount or going to an outlet store. Somehow, it isn’t right for these people to pay less.

The problem is that plan fiduciaries such as plan sponsors and trustees don’t have that luxury. With their fiduciary duty on the line, plan sponsors need to pay reasonable plan expenses for the services involved. Plan fiduciaries can only determine whether the fees they pay are reasonable by shopping their plan to other service providers. If they don’t shop around and overpay in fees, they may subject themselves to liability from plan participants. It should be noted that plan sponsors don’t have to pick the cheapest providers because often, there is a reason why some providers are cheap.

How to determine whether a plan sponsor is paying way too much? Like Justice Potter Stewart would say, I know it when I see it. I have seen the information shown on Form 5500 or a fee disclosure form. Whether it’s the plan sponsor paying a Big 4 accounting firm $54,000 for a limited scope audit or another plan sponsor paying a broker 60 basis points (.60%) on a $14 million 401(k) plan, there are plan sponsors seriously overpaying for services. Fee disclosure has made it more apparent that plan sponsors are overpaying, but again, the only way to determine that is if plan sponsors survey the 401(k) marketplace to see what other plan sponsors are paying.

As an ERISA attorney who drafts plan documents at a flat fee, my biggest competitors are not other ERISA attorneys, but third-party administration (TPA) firms.

Plan documents are just another service that TPAs can provide and they can provide it either for free (as most of the bundled providers do) or at a cost that is highly competitive against most law firms. Some TPA firms have a legal department that drafts these plans, others have paralegals or plan administrators handle that duty. I know a thing or two about this topic, having done that as the Director of ERISA Legal Service for a certain TPA for almost 5 years.

As you know, retirement plans are legal entities and plan documents are legal documents that have legal consequences to the plan sponsor and the plan trustees. Would you want these plan documents to be drafted by someone who wasn’t an attorney? Even if your TPA has a legal department, there is no attorney-client relationship between the TPA’s attorney and the plan sponsor. So what? With an attorney-client relationship, the plan sponsor’s needs come first. With a TPA attorney, the TPA’s needs come first because a TPA attorney doesn’t have that duty of care. The independent ERISA attorney is essentially a check on the TPA, to ensure proper administration. A TPA attorney can’t do that because they are the TPA.

I have a client who has had their defined benefit plan butchered by two consecutive actuarial firms. An independent ERISA attorney could have alleviated some of the problems before they happened, namely paying someone a lump sum even though the law prohibited that person from getting a lump sum.

Attorneys don’t have a sterling reputation when it comes to reasonable fees, especially ERISA attorneys. With a low overhead and a flat fee, I am trying my best to make needed ERISA legal work affordable to plan sponsors.

If you read my writings, you know that fiduciary liability is one of the plan sponsor’s more important concerns as a plan fiduciary. Since participant-directed plans under ERISA §404(c) are supposed to limit a plan sponsor’s liability, I have consistently reiterated the need for plan sponsors to develop an investment policy statement (IPS) with their financial advisors, consistently review the funds against said IPS, and provide participant education. Otherwise, plan sponsors can be subject to liability from participant lawsuits.

A plan sponsor’s adherence or disregard for ERISA §404(c) is no guarantee that the plan sponsor will not get sued or will get sued. While fiduciary liability is a great topic these days because plan sponsors have been named defendants in lawsuits by participants more frequently today than in the past, fiduciary liability isn’t usually what gets plan sponsors into trouble

Retirement plans are highly technical, tax-deferred, and qualified entities. Retirement plans have so many different moving parts with so many discrimination tests, buffeted by a plan document that can be difficult to understand for most people. So my rule of thumb is that if an Internal Revenue Service agent or Department of Labor agent wants to look for something wrong, they will find it. It may not be a huge plan error like a plan document that hasn’t been updated in 10 years, it can be as simple as not allowing participants to change their 401(k) salary deferrals according to the terms of the plan

Plan errors can come in all different shapes and sizes and a plan sponsor can detect these errors through the use of an ERISA attorney or their third-party administration firm. By finding these errors on their own, a plan sponsor could self-correct if the error doesn’t require an IRS submission. Larger errors or errors discovered on a plan audit by the IRS and/or DOL may require submission to their respective voluntary compliance programs.

Unfortunately, plan errors are a common fact of the day-to-day administration of a retirement plan error. With the right team surrounding them, plan sponsors can mitigate potential plan defects. Yet if they have plan errors, there is enough room for the plan sponsor to correct them without large penalties or the risk of plan disqualification.

I’ve watched Survivor since it first started about 23 years ago and I never tried out for the show. I’m unathletic and I can’t swim, I’d be the first one voted off. I’m also on the path of least resistance, which means I go along with the crowd until the crowd turns on me. I agree on things until I can’t and that disagreement doesn’t sit well with the people that want me to go along for it all.

In the scheme of life, you have to look out for yourself because it feels that no one else will. You need to speak up and demand what’s yours. Otherwise, there might not be anything you want, left. Recently, I had to push back on a piece of business that was mine for 11 years and some parties thought I should surrender it for free. Long-term partners didn’t understand why I said no because I said yes to a lot of things that I probably shouldn’t have. You plant a tree and you should see to it, that it bears fruit for you.

When I first heard about ERISA §3(38) fiduciaries, I was a lowly law firm associate and I saw that it was going to be a growth area for advisors. According to PLANADVISER’s most recent survey about 15% of Defined Contributions plan sponsors had 3(38) fiduciaries, about 31% had 3(21) fiduciaries and 24% were unsure of which type of adviser they had. I would assume the number of 3(38)s was higher because almost a quarter of plan sponsors had no idea what kind of advisor they have.

It’s been such a growth area for advisors because it allows the advisor to do what they best, manage the fiduciary process, without bothering with the plan sponsor, who would have gladly put off a fiduciary meeting if they could. It’s not for every plan sponsor because plan sponsors out there might still want to exercise control over their plan.

I have a client who is a third-party administrator and it appears that a former employee put them in a bind by giving some truly awful advice to a client. The advice was that the plan sponsor could make a contribution for the plan year that was prior to the effective date of the plan. Yes, you read that right. Since I don’t have a DeLorean time machine, I’ve been working with them to fix what could be a major problem if ever detected on a government audit.

If you give your employees proper training, these kinds of catastrophic errors won’t be much of an issue. If you don’t, these errors will be a regular thing.

I always say a retirement plan provider needs to find its niche to stand out in the retirement plan marketplace.

A new firm, Annuity Research & Consulting, has been created to help 401(k) retirement plan sponsors and their record keepers evaluate annuity/lifetime income options for the plans. The firm will operate on a fee-only basis.

The new firm is an RIA and has 3(38) and 3(21) fiduciary capabilities.

I wish them luck, but I haven’t come across that many plan sponsors that are interested in lifetime income options, especially since they aren’t required to offer them.

Minnesota is slated to become the next to adopt a measure creating a state-run retirement program that provides coverage for private-sector employees whose employers do not.

The state Senate approved the bill in a 34-33 vote. The House passed it in a 71-60 vote.

The legislation would require employers that employ five or more covered employees and that do not sponsor their own workforce retirement savings plan to participate. It also would afford employees a variety of options. They could opt out f participation: decide whether their contributions will be pre-tax or after-tax; and direct the investment of their accounts into an array of investment funds offered through the State Board of Investment.

Some disturbing projections came out of a Pew study on retirement plan savings.

The new research from Pew has found America’s retirement savings gap could create a $1.3 trillion economic burden through 2040. The Pew study says as many as 56 million private sector workers lack access to an employer-sponsored retirement plan.

The lack of the ability to save for retirement could lead to a cumulative additional cost to the federal government of $964 billion between 2021 and 2040. State spending on these programs, stemming from administrative costs, required state match formulas, and supplemental state benefits, totals another $334 billion over that period, resulting in the $1.3 trillion projection.

Vestwell announced new industry partnerships and integrations to help advisors.

Vestwell was selected to support J.P. Morgan expand their recordkeeping options and help with Everyday 401(k), Chase’s small business 401(k) workplace savings platform.

Vestwell also expanded its distribution partnerships with leading advisory firms, including Commonwealth Financial Network and Cambridge.

The firm also recently announced partnerships with theCarson Group and RBC C&C to help financial advisor practice growth.