The Rosenbaum Law Firm P.C. Blog

A federal appellate court says that the Labor Department is allowed to pursue its inquiry into the cybersecurity practices at a large recordkeeper.

Judge Michael B. Brennan of the U.S. Court of Appeals for the Seventh Circuit says that the Department of Labor is allowed to pursue its inquiry into the cybersecurity practices at Alight Solutions, a large retirement plan recordkeeper

The DOL was investigating alleged cybersecurity breaches at Alight Solutions and, issued an administrative subpoena. Judge Brennan noted that Alight produced some documents but objected to many of the subpoena’s requests. Alight fought the subpoena based on their argument that the DOL lacks authority to investigate the company, or cybersecurity incidents generally.

The DOL investigation was prompted by Alight processing unauthorized distributions of plan benefits due to cybersecurity breaches and the DOL claimed Alight “failed to report, disclose, and restore those unauthorized distributions.” Alight has denied any knowledge of breaches resulting in unauthorized distributions.

The court ruled that the DOL’s authority was not limited to fiduciaries and that the requested information was reasonably relevant to the ERISA investigation.

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

When I started in the retirement plan business, the third-party administrator (TPA) related law firm I was working at was charging $2,000 a plan document. 24 years later in 2022, that’s still my going rate. While my real estate taxes and health insurance premiums aren’t as static, the reason I’m ok to charge the same amount I did 18 years ago is that technology has made it easier to draft plan documents and I can simply email them to clients in a PDF with electronic signature capability. What time it took me to draft one plan document, I can draft four.

Technology has allowed us to be more efficient and for us to still make money and charge less of a fee. Fee disclosure regulations have also sped up the competition where fees are going lower and lower. That’s the price to pay for transparency and competition. I envision that the new Fiduciary Rule will have the same effect as fees as advisory fees will go down because of competition and the elimination of some inherent conflict of interests in the broker business.

There is a genuine fear that we are in a race to zero fees and all I can say is that there will be less of a race if we don’t join it. There are times I’ve turned down business because I didn’t want to do a plan document for $250 or do something labor-intensive that didn’t justify my fee. Like I say with some of the plan documents that I have to compete with provided by bundled providers, I always say I can’t compete with free. There are many low-cost providers out there and some do a very good job and some don’t. There is always going to be someone who is going to charge a small flat fee to advise such a larger plan that the work is far extensive from the fee. What I’m saying is that you don’t have to get in a competitive race where your fee is outweighed substantially by your work, but the days when you were getting 100 bps to advise a participant-directed plan are over too.

Sure there are going to be plan providers who are going to race to zero, but they are going to learn a hard fact that so many other such providers have learned in the past: there is no money and no profit in that kind of pursuit, it reminds me of this broker business called Foxton’s that was going to revolutionize the home brokerage business by only accepting a 2-3% commission when everyone else was charging 4-6%. It failed because people didn’t see the value of saving the extra point or two when Foxton’s didn’t go the Multiple Listing Service route and couldn’t get enough inventory of houses to justify the fee. I have learned over time that cutting fees to the bone only works when you have a surplus of clients. Racing down to zero in your fees is a recipe for disaster if it doesn’t drum up that business.

So my point here is that you should always be cognizant of your fee as it stands in a marketplace, but you are going to cut your news to spite your face by joining this fruitless race to zero in plan fees.

I was reading a great book on the 1981 PATCO air controllers strike and President Reagan’s decision to fire them because the strike violated federal law that barred them from striking.

PATCO air traffic controllers had their usual list of grievances that every employee has such as poor pay, poor working conditions, and problems with supervisors. The problem with PATCO is the union was manned by militants who thought they were irreplaceable. They thought a strike would bring the country to its knees and the FAA and the Federal Government would cave in. PATCO made a deal with the Federal Government and then their membership rejected it. The union then asked for more pay including a $10,000 salary increase across the board. Remind this is 1981 and Ronald Reagan was in office. While PATCO Union leaders knew a strike would break the law, they thought the fact that they considered themselves irreplaceable and that history showed that federal strikes never brought termination would help them. They were wrong.

Ronald Reagan fired the strikers and they were banned from getting their jobs back for another 13 years. When you think you’re irreplaceable, you usually find out you’re not.

Whether you think you’re irreplaceable to your bosses at work or you’re irreplaceable as a plan provider to your client, you’re going to be sadly disappointed.

I was the top ERISA attorney at a third-party administration firm and I knew I wasn’t irreplaceable. I had no attorneys or paralegals under me, so I knew they’d be struggling when I left. They eventually had to hire two attorneys and a paralegal to replace me, so I wasn’t irreplaceable. It just cost them a heck of a lot of money to replace me, it took them a few months to right that ship, but they did.

As a retirement plan provider, there are so many capable providers who want your seat with the client. They may not be as good as you are, but they can replace you. If they’re not up to snuff, then the client will keep on changing providers until they get the right fit.

The only people that are irreplaceable are people in your life that die whether it’s a parent, grandparent, sibling, or best friend. Outside of these one-of-a-kind relationships, just know you can be replaced. So that means you need to check your ego at the door when dealing with your clients and the people you work for.

Being successful and giving back is agreat thing. For example, I’ve been lucky to support a scholarship at my alma mater Stony Brook University named in memory of my grandparents. Giving back through philanthropy is just a great way to show people your corporate values and culture.

People who are philanthropic do it for the right reasons. They do it to help and they expect nothing in return. If you donate, it should be from the goodness of your own heart with no string attached.

Over time I come across people who donate with strings attached and the string is to use those “good deeds” to profit themselves.

One of my most frustrating episodes of late was serving as a Vice President of my former Synagogue. The reason that it’s former is for a wide of variety of reasons (especially that they weren’t teaching my kids in Hebrew School), but everything I did for the place was to make it better. I never used that place to grow my practice or make a buck. I contrast that with the former President who as a real estate broker shamelessly advertised in his Presidential reports that he would donate 10% of any commissions that resulted in referrals from synagogue members. 10%? There are people who tithe their salary in that amount without getting any referrals. It’s shameless and I’m sure he thinks he was being generous. In Yiddish, we call that man a schnorrer.

The strings attached approach also reminds me of a well-known individual in my village. His organization claims to do good, but it’s used as a haven to get employment from the school board, sanitation, and library for the people that are members and for the most part are undeserving. I was very critical of someone in that organization and this person attacked me for doing nothing for the community. This same individual collects commissions for selling insurance to the local tax districts and his wife just got a job as a librarian from the school board, all as result of his “work” for the community. So if helping the community is about helping yourself, then I haven’t helped the community.

The point is that philanthropy and helping out the community is really about showing people that you care, it shows the goodness of the values and culture of your organization.

When I was younger and it involved with student organizations, there was this saying that you should give people a title and get them involved. Making someone the assistant editorial page editor at the school paper was fine as long as they did the work. Otherwise, it’s meaningless to have a title without having any responsibility.  We have people on our local chambers of commerce board who do nothing and own no business.

As a plan provider or someone working for a plan provider, I think people are more interested in titles than the responsibilities that go with them. I saw it in the non-profit organization where I was the Vice President. You have people get titles that they were in charge of some committee or auxiliary organization and they were content to do nothing. On the flip side, I demanded I be made Vice President because I was doing a ton of work and I wanted a say in how the organization was being run. When I found out that the organization was being led by 5 people who were unelected and I was just a figurehead, I stepped down. What’s the point of having the title if you don’t have any responsibility and call the shots?

Titles look good on a resume, and they sure do, but if the requisite experience isn’t behind it, what’s the point? They’re going to find out somehow. I remember when I got ticked off at law school that I didn’t make a law review or another journal that I decided to start my own. After I realized the struggle to start one and the fact that the administration would do nothing to get that off the ground, I thought calling myself the Editor in Chief of a law journal that was never going to be published was awfully silly.

The point is the work you do is more important than the title. When I got named the head ERISA attorney at a third-party administration firm and was named a company director, it wore out thin especially when being director means you got a nice desk clock and no say in the running of the place.

The other issue in titles is something I’d discussed a few weeks about what I call “top-heavy” administration where a company has too many generals and not enough soldiers, giving people titles that are more important than their actual job can give people an arrogance that the company doesn’t need and people stop doing work that they think is underneath their title. I told the story of a plan administrator on the first day of work when the administration firm had nothing for her. When asked to help out and make some copies of plan documents, she quit on the spot.

Heck, you can call yourself the King or Queen of 401(k), but it becomes a joke when your work doesn’t live up to the title.

When I was in law school at American University and we moved into a new building (25 plus years later, they are now in another new building) a few blocks away from the main campus. The computer sync site at the new building had a number of Apple Macs and the former law school Dean didn’t understand why we would spend money on what he called the Betamax of computers and in 1995, Apple was on its last legs. Thanks to the return of Steve Jobs, Apple made one of the greatest comebacks in business history. However, it took some time for Apple to get its mojo back and it probably could be traced to the Introduction of the iTunes Store in 2000 and the iPod in 2001. Apple didn’t become one of the most successful companies again, overnight.

When the proliferation of financial advisors started offering §3(38), I heard a lot of their competitors claim that plan sponsors weren’t really asking for it. I heard the same thing when plan providers (including yours truly) started offering §3(16) administration services. Over time, I have heard more and more plan sponsors asking for these services. I know firsthand because I have had a lot more opportunities and meetings with plan sponsors wanting to delegate their duty as plan administrators.

Cable TV, VCRs, Wi-Fi Internet, smartphones, and tablets. These are just some products out there that took time to get popular. Any new product or service needs time to develop and get enough traction that consumers become aware of it. It takes time and interest, but products and services that offer a value proposition will gain traction if people know about them.

So the lesson here is that plan sponsors will further educate themselves on these ERISA fiduciary solutions and they will start demanding them. It just takes time and information.

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

My latest newsletter for retirement plan professionals can be found here.

At points after the implementation of ERISA, there were graded vesting schedules as long as 10 years and every few years, we would be forced to eliminate the 7-year schedule for certain law changes. I always say that there will be a day when all contributions will be required t be fully vested and employers are pointing that way too.

How so? According to Vanguard, nearly half of plans they served as recordkeeper, immediately vested participants in employer matching contributions, while 25% of plans with employer matching contributions used a 5- or 6-year graded vesting schedule.

I think more and more employers will see 401(k) plans as an effective tool to retain and recruit employees, so they willfully vest contributions before it’s mandated by the government.