The Rosenbaum Law Firm P.C. Blog

If you’ve ever read anything I’ve ever written, you probably know that I talk about the experience I had at a semi-prestigious Long Island law firm.

I can blame the bureaucracy, the marketing limitations set by lawyers who didn’t bring in any business, the unsupportive law firm administrator and managing attorney, but ultimately, I failed to start a national ERISA practice there. But I wouldn’t let that failure define me, it just drove me to succeed when I started my own law practice. The poor treatment I got there helped me act tougher, stop waiting my time on relationships that wouldn’t deliver, drove me to succeed, and created a chip on my shoulder.

I knew they would suffer since they didn’t understand the future of social media and I knew I would succeed because I saw the future. I enjoy writing about them because when you’re poorly treated, you want to rub your success in the people that were dismissive of you.

I know someone who lost their father when they were 12. I have a wife who lost her father when she was 16. The difference is the former allowed that loss define her and my wife has refused the untimely death of her father to hold her back.

We are all shaped by our past, both good and bad. We should never let a bad event or time define us.

As a financial advisor, you’ve been volunteered as a plan ombudsman and the problem is that you probably don’t have the knowledge of an ERISA expert.

That’s why it’s important to work with ERISA experts like ERISA attorneys, and especially the third-party administrator (TPA). Let the TPA do their job, whether it’s the administration or fixing the problems of the previous TPA. While you’re worried about your client and your relationship, trust the competent plan providers that the plan sponsor has selected and get out of the way.

For the past 9 1/2 years, fee disclosure has certainly helped you as a plan sponsor to finally understand the true cost of plan administration. That’s important because you have a fiduciary duty to only pay reasonable plan expenses.

The problem is that fees are only one part of the picture. You only have to pay reasonable plan expenses and not the lowest, despite what you may think. You need to weigh the cost vs. service. Just hiring a plan provider that is cheap is an absolutely bad idea. Nothing wrong with picking up the same product at a discount at Target than Macy’s, but retirement plan services don’t work that way because plan providers don’t offer the same exact service. Provider A charging $25 a head might be offering a lower level of service than Provider B that charges $50. It’s your job to compare the pricing and services between Providers A and B.

As a plan sponsor, you can’t just shop on price. Price is important, but it’s just one factor in considering hiring a plan provider.

In any service industry, the quality of service and price can be far and wide. While people say that I focus way too much on the workings of the third-party administration (TPA) business, I have more experience in that field as an ERISA attorney and former employee of a couple of TPAs.

People often ask whether as an ERISA attorney, I work as a TPA as well. I quickly state no, let the folks who know what they are doing do what they are doing. I have too much respect for the work of TPAs to be in that business, which I find gets too much blame and not enough credit, at least for the good ones.

However, looking at the TPA business, I always notice the wide difference in pricing, but more about the wide difference in service. For example, I have a client who clearly was taken advantage of by a TPA that is really in the business of selling insurance, with the administration just being treated as an ancillary service. The clients were sold a couple of life insurance policies that the company could no longer afford with a special sub-trust that the Internal Revenue Service no longer finds special.

I have another TPA looking at the plan, which may or may not charge the same price, but offering an exit plan to get out of the plan that is a half million in the hole. The potential new TPA remarked how the plan should have winded down earlier and wondered why the current TPA/ snake oil salesman didn’t advise the same. It’s hard to when you really aren’t in the TPA business and are really in the insurance selling business because terminated plans don’t pay administration fees or pay premiums.

When it comes to finding the right TPA, price is important, but the quality of service is the difference maker to me.

The consolidation of the retirement plan business has not let up

Smart, a British company that is about to launch a pooled employer plan in the U.S. this year, is buying Stadion Money Management.

Stadion’s business includes more than 4,000 retirement plans and $2.3 billion in assets under management.

Smart is planning to start off with a plan service slated to launch in July, it is also considering the groups of plans model, along with a PEP and “cookie-cutter” style single-employer plans.

It seemed like a good idea at the time, replacing Matt Hutcheson as the fiduciary of an open multiple employer plan (MEP). Within a few weeks including conversations with adopting employers with missing money, I realized that this was a bad idea.

A large national plan provider recently went into a strategic relationship with a third-party administrator (TPA) with a terrible reputation for excessive termination costs. The problem is that this national plan provider already knew.

When developing strategic relationships with plan providers, keep your ear to the ground and investigate them and their reputation. I can tell you from experience that working with a retirement plan embezzler wasn’t a good thing.

Changing third-party administrators (TPAs) isn’t fun. If you have to for it, do it. However, you need to coordinate with the new TPA with the entire conversion process. TPAs are greater experts at the conversion process than you are, so let them run it.

This isn’t the time for you to go into business for yourself and run the process without the new TPA’s knowledge and advice.

You hire pros, let the pros run the process.

Litigation isn’t fun, but there are times when you have to sue to protect your rights.

The American Retirement Association recently had to sue the National Institute of Pension Administrators (NIPA) for a trademark violation of Accredited 401(k) Administrator. As a retirement plan professional, you hate to see this. As an attorney, you still know why it’s happening.

NIPA announced plans to offer this accreditation and since ARA offers it through ASPPA, that’s confusion in the marketplace.

I like when people state the obvious, but the concept is way over their head.

The National Institute on Retirement Security did a study that states that a typically defined benefit plan has a 49 percent cost advantage compared to a typical individually directed defined contribution plan because of longevity risk pooling, asset allocation, low fees, and professional management.

Anyone with experience in the 401(k) space would know that trustee-directed invested plans with an annual valuation will always be cheaper than a daily valued 401(k) plan of the same size.

However, ask companies why they ditch pension plans. It’s not because of fees, it’s because the burden of funding contributions is almost entirely on the employer. Employers shifted to 401(k) plans to save money on employer contributions and that’s a fact that kind of pores water over this study.

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