The Rosenbaum Law Firm P.C. Blog

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.

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.

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.

I saw a recent article by Matthew Breunig, suggesting that instead of cutting Social Security, we should end the tax breaks for 401(k) plans. He claims that the tax advantage of IRAs and defined contribution plans is $371 billion and should be sacrificed because the bulk of the money belongs to rich people.

That’s simplistic because that’s if you really believe someone making over the highly compensated employee limit of $135,000 is rich, well then, you don’t know the cost of living in New York, Boston, San Francisco, and Los Angeles.

The problems with Social Security have nothing to do with 401(k) plans. The trust fund doesn’t exist, it’s just an IOU from the Federal Government, so the money was never invested like with a 401(k) plan. In addition, people live longer. I know infant mortality was high, so the life expectancy in 1930 for women was 62 and 58 for men when it took age 65 to get benefits. People live longer these days and that has hampered the system. But does cutting back the 401(k) benefits, help social security? It probably won’t and any serious discussion on saving the system will be kicked further down the road for our kids and grandkids to handle.

They claim that with the change in how we count participants, there will be 20,000 fewer audits. By counting account balances instead of those that are just eligible, it looks like CPAs would see a retraction of their business of auditing retirement plans.

Yet, with increased coverage requirements by states for employers to offer plans, mandated use of automatic enrolment for new plans,  and pooled employer plans, I don’t know if that 20,000 reduction will be accurate, in the long term.

The 2023 Form 5500, which will be filed beginning in mid-2024, includes the following changes:

• A consolidated Form 5500 reporting option for certain groups of defined contribution retirement plans, improved reporting by pooled employer plans and other multiple-employer plans;
• A change in the participant-counting methodology for determining eligibility for simplified reporting alternatives available to small plans, which are generally plans with fewer than 100 participants, which means only counting participants with account balances;
• A breakout of reporting on administrative expenses paid by the plan on the plan’s financial statements;
• Changes in financial and funding reporting by PBGC-covered defined benefit plans;
• Added Internal Revenue Code compliance questions to improve tax oversight and compliance with tax-qualified retirement plans;
• Technical and conforming changes as part of the annual rollover of forms and instructions;
• Technical adjustments that address certain provisions in SECURE 2.0 Act of 2022 regarding 403(b) multiple employer plans, including:
  • pooled employer plans;
  • minimum required distributions;
  • and audit requirements for plans in defined contribution group reporting arrangements.

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

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

Social media is one of the great tools that I needed to start my own ERISA practice. While my Twitter handle can attract some interaction with non-retirement folks, I’m always mindful of what I post and how I handle myself. One thing I’ve never done is troll people in the retirement plan business over their comments. It would make me look bad, and reflect poorly on me.

I will say with the 13 years I’ve been online on LinkedIn with my own firm, I have had maybe two trolls. One was a guy who wasn’t in the 401(k) plan business who said that people like me and James Holland were selling fear for our services because we were for fee transparency. The other was a small, local third-party administrator (TPA) who seemed to have an issue with almost everything I’d post. I’m not talking about basic disagreements over opinion, I’m talking about someone trying to engage me in some sort of social media fight.

I see fewer of these fights these days and I’m glad for that because it means fewer providers disrespecting themselves by posting comments that make them look bad.

When I was at that semi-prestigious law firm on Long Island, I became convinced that I could draw business from around the country by creating content via social media that would allow me to develop relationships with financial advisors, third-party administrators, and plan sponsors. The managing attorney (who has since retired after destroying the firm) couldn’t disguise her disdain for social media by ridiculing her husband, who was successfully doing it for her own practice. It took me to start my own practice to be able to use social media effectively and for better or worse, it’s worked well since 2010.

While some plan providers claim it’s a waste of time, I disagree and a recent survey backs that up. Registered investment advisers are increasingly landing clients via social media marketing, according to recent research. The number of advisers converting social media leads to clients continued to trend up in 2022 to 41% of those surveyed, a 1% increase from last year, but up from 34% since 2019, according to a survey conducted by Broadridge.