The Rosenbaum Law Firm P.C. Blog

When I worked at that semi-prestigious law firm as an associate, my goal was to develop a national ERISA practice and I thought that a great foundation was the firm’s existing business clients. I thought it would make sense since the originating attorney for the client would get a 50% referral fee from any fees I originated on the ERISA attorney side. For some reason, these former solo attorneys were more interested in protecting their clients than making money.

So rather than sitting around and waiting to die, I tried to engage financial advisors and try to sell them my legal services by citing my flat fees and how I was less expensive than what my former third-party administrator was charging and I could offer an attorney-client relationship. One advisor put it out bluntly: “what was in it for him as an advisor?” There was no quid pro quo, but I knew that getting cost-effective legal services for his clients was not his main concern.

So that’s why I started writing my articles that advisors and other retirement plan providers could distribute to their clients and potential clients for free. If I built enough goodwill with these providers with articles that could help drum up business, then maybe I’d get it back in referrals. 10 years later, I’m doing ok.

The point here is that you have to understand what other people may think and when offering them something, what’s in it for them. It doesn’t mean they’re being selfish, but life is a game of give and take.

An article from one of the news sources I enjoy about retirement plan news, had an article about whether vesting can be controversial? Not really, the rules are the rule and the question is whether employers want to offer a better schedule such as immediate vesting to maintain and recruit employees.

Vanguard’s recent “How America Saves” report stated that nearly half of plans immediately vested participants in employer matching contributions, while 25% of plans with employer matching contributions used a 5- or 6-year graded vesting schedule. As a former employee, I’m surprised with how many plan sponsors actually immediately vest and wonder why I didn’t work at a place like that.

I find nothing controversial about vesting because ultimately, the Internal Revenue Code will require immediate vesting at one point. That’s what history points to, I’ve seen older plans when the original schedule for vesting was 10 years. Over time, the rules have curtailed the years necessary and I think there will be a day in my life when 100% vesting is mandated.

With apologies to Tod Higgins (played by Keanu Reeves) in “Parenthood”, you need a license to practice law to be an ERISA attorney, you need to be a CPA to be a retirement plan auditor, and you need a securities license to be a financial advisor, but any shmuck can put out a shingle and call themselves a third party administrator (TPA).

There is no required training or licensing for someone to operate a TPA business and I find that scary for a position that requires such knowledge and expertise to do the job of plan administration and recordkeeping properly.

So when looking for a TPA, look for any ASPPA or CEFEX designation or other accreditations such as an enrolled actuary among the professionals you hire as your TPA.

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

As an employer and a plan sponsor, you’re the folks that employees will go ask questions. With a troubling stock market and an economy that might. be close to recession, your employee/participant may ask you what they should do with their 401(k) deferrals and investments.

While you’d love them to stay the course or explain the benefits of dollar cost averaging, don’t. You’ve hired a financial advisor to do that. Stick to what you know and unless you’re an advisor, don’t give investment education and advice.

Captain Kirk didn’t believe in the no-win situation, he learned the hard way in Star Trek II: Wrath of Khan.

There are certain situations as a plan provider where a client relationship puts you in a no-win situation. It could be the difficulty of the client or difficulty in working with other providers. A few weeks back, a registered investment advisor advised me of issues with a brokerage team they had to work with on a particular 401(k) plan. The problem is the advisor was the stick in the wheels for the brokerage team, who made it very difficult for the advisor to properly work with the client. The advisor resigned, as it clearly was a no-win situation in working with a brokerage team that was more interested in their inflated fees, than providing quality services to the plan sponsor. The advisor knew that this was a relationship that could never be cordial or built on trust, it would be a fight every step of the way.

As I’ve said before, there is no shame in quitting when things don’t work out and there are certain no-win situations where quitting is the best option.

24% of 401(k) plan sponsors claim they are somewhat or very likely to search for a new plan administrator in 2022, according to a survey conducted by Callan.

That means no matter how shaky the market is, there will always be plan sponsor clients in play for you if you’re a third-party administrator.

Northeastern University is the latest university plan sponsor to face a lawsuit alleging breach of fiduciary duty to participants

The new ERISA case filed in the U.S. District Court for the District of Massachusetts, names Northeastern University, the retirement plan investment committee, and unnamed individuals involved as defendants for the university’s 403(b) defined contribution retirement plan.

The plaintiff is a Northeastern employee, who alleges that Northeastern retirement plan fiduciaries breached their fiduciary duties to plan participants.

The complaint alleges excessive fees for recordkeeping and investment management costs charged by Fidelity Investments and TIAA. It is further alleged in the lawsuit that the plan failed to ensure that recordkeeping expenses were reasonable and that the defendants failed to act to replace plan menu investment options with excessive management fees.

According to the complaint, revenue sharing was used to compensate Fidelity and TIAA for recordkeeping and administrative services. The complaint also stated that revenue sharing harmed plan participants because it resulted in workers being forced to pay above-market recordkeeping and administrative costs that were hidden from view.

The complaint also claims that plan fiduciaries failed to prudently select and monitor the plan’s investment options by including high-cost and underperforming target-date funds. When compared to options in similarly sized plans, several of the Northeastern plan’s investments were substantially more expensive than others found in plans of the same size, according to the complaint.

The plan holds at least $1.3 billion in plan assets

You can look at the glass as half full or empty, it’s just your view on things. The average 401(k) account plunged by nearly $10,000 in the first quarter of 2022, according to Fidelity, thanks to the market and runaway inflation.

Fidelity, which oversees more than 35 million retirement accounts, released data that found the average 401(k) account balance decreased to $121,700 in the first quarter of 2022 from $130,700 in the fourth quarter of 2021.

IRA accounts dropped to $127,100 in the first quarter from $135,600 in the fourth quarter of 2021 and 403(b) accounts fell to $107,600 in the first quarter from $115,100 in the fourth quarter of 2021.

However, the numbers are a dramatic increase from a decade ago. In the first quarter of 2012, the average 401(k) was $74,900, the average IRA was $75,300, and the average 403(b) was $58,000.

Most importantly, the rate at which people are saving has soared. The savings rate for 401(k)s, which includes contributions from employers and employees, reached a record level of 14%, just marginally below the 15% Fidelity recommends saving.

One of my shortcomings is that I like to be right, I enjoy it when I see something years earlier, and it comes true. Usually, it would be a negative outcome for an organization that I was affiliated with.

As I said, when automatic enrollment was known as negative election and wasn’t part of the Internal Revenue Code, I was against it since the money was parked in money market accounts because of a lack of fiduciary protection for plan sponsors. That changed in 200 when negative election became automatic enrollment (better euphemism, it’s positive).

Despite what some co-workers thought, I thought automatic enrollment was a positive step to cover employees who may not have deferred on their own. According to a recent study, 74% of plan sponsors have automatic enrollment for their plan, as of 2021. Getting people to save through automatic enrollment increases savings and plan assets, and that’s a good thing.