The Rosenbaum Law Firm P.C. Blog

In communications with other plan providers, clients, and potential clients, you have to be clear. There isn’t much room for miscommunication. When dealing with clients, miscommunications can lead plan sponsors to some huge mistakes.

Everything you write or say must be clear, there can’t be room for misinterpretation because the stakes are pretty high. I’ve seen too many plan sponsors that were harmed because the third-party administrator wasn’t clear on the information needed for an end-of-year census.

If you tell people what you need and what they need to know in clear language, a lot of mistakes will be avoided.

I did a podcast interview with Josh Itzoe, who is a terrific fiduciary and his Fiduciary U Broadcast is fun.

As always, I probably said some things that maybe I shouldn’t. I know how to censor myself in the community Facebook groups, but I enjoy being frank and honest about the retirement plan business, a business that I love so much. My frankness gets me fans and clients, but. I do realize that it closes down doors. I suspect a longtime supporter of mine is no longer supporting my endeavors because they hooked up with a provider that I have been very vocal against. I don’t take things personally because it’s business. But you have to realize that saying how you feel does have a consequence.

I’ve seen plan sponsors do it, I’ve seen employees do it, and I’ve seen plan providers do it. I knew Matt Hutcheson and Jeff Richie. I knew a plan sponsor that ignored my advice and got sentenced to 3 years in prison.

What amazes me about it is that eventually if you steal, you will be found out. Stealing millions or even thousands of dollars will be eventually detected. You have a better shot of wearing pantyhose on your head and robbing a bank in getting away with it than stealing from a 401(k) trust where your fingerprints will be everywhere.

So don’t steal, it will never work out.

With so many fee litigation cases over the last few years, I was concerned that the Federal court was getting sick of cases where plaintiff’s attorney just merely pleaded that the costs of the plan were too much and. it was a breach of fiduciary duty. A case coming up for the Supreme Court may change everything.

The Supreme Court recently will hear  Hughes v. Northwestern University. The certiorari petition for the case phrased the question presented as: “[w]hether allegations that a defined-contribution retirement plan paid or charged its participants’ fees that substantially exceeded fees for alternative available investment products or services are sufficient to state a claim against plan fiduciaries for breach of the duty of prudence under ERISA.”

The Northwestern participants alleged that Northwestern University breached the duty of prudence by (1) paying excessive recordkeeping fees, using multiple recordkeepers, and using revenue sharing, and (2) offering mutual funds with excessive expense ratios.

The district court threw out the case, and the Seventh Circuit affirmed. 

The Seventh Circuit stated that ERISA does not require a sole recordkeeper, and there is “nothing wrong – for ERISA purposes – with plan participants paying recordkeeper costs through expense ratios” under a revenue-sharing agreement.

As for the excessive investment management fee claim, the court emphasized that Northwestern had provided the plans “with a wide range of investment options” and offered “prudent explanations for the challenged fiduciary decisions.”

If the Supreme Court affirms, expect a major slowdown in class action lawsuits.

Walgreens has settled a class-action lawsuit after agreeing to pay $13.75 million into a settlement fund for a class of approximately 195,000 current and former participants of the plan. In addition, the pharmacy will remove the Northern Trust Focus Target Retirement Trusts from the plan and to, for a period of three years, use an investment adviser for ongoing plan investment monitoring.

The settlement comes after Judge Charles Ronald Norgle of the U.S. District Court for the Northern District of Illinois refused to dismiss the case.

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

I had a great time on Joshua Itzoe’s podcast and one point, he brought up was that I was a proponent and defender of third-party administration (TPA) firms. If you followed me on LinkedIn when I started my practice 11 years ago, you might think otherwise.

11 years ago, there was no fee disclosure and I had a chip on my shoulder about the TPAs I had worked for and the issues I had with them,  regarding the. pocketing of revenue sharing and the lack of fee transparency. I was labeled by some as a TPA critic, but I think it’s due to the sensitivity of some in the business. It wasn’t that long ago that David Wray was a spokesperson for the industry and he’d try to beat back anything he saw as criticism to the industry. I think the issue is that we can be critical of this business and still be a defender of it.

Pooled Employer Plans (PEPs) are in my mind, a nice product. For most of the time, it’s not the right fit. So I don’t understand why anyone would create a PEP for a niche purpose, such as a commitment to ESG investments. Do we really need to further differentiate PEPs by investment style?

I understand there is a desire for people who like ESG investments (I like gambling stocks actually) but is there a marketplace for companies interested so much in these investments, that they will join a PEP for that? Time will tell.

You get what you pay for and I think a lot of sole proprietors get that with a free solo 401(k) offered by their friendly brokerage house. Most solo 401(k) account holders get zero support. A burgeoning part of my ERISA practice is dealing with these solo plan sponsors and their compliance issues, mainly dealing with the 5500s they were supposed to file, and didn’t.

Since these small plan sponsors get zero help, this is another point where I think could be an attractive way of generating buzz and adopoting employers for a pooled employer plan.

On Columbus Day, I was running an errand in my Prius V, and a woman in the right lane crossed over and hit my car. The woman immediately followed me into a parking lot. I was mad because I had damage and the car would have to be repaired. The first thing the woman did when talking to me was to apologize and admit fault. At that point, I couldn’t be mad because what was done was done and she admitted fault. Perhaps, if she was a man, instead of an apology, I might get the complaint that it was my fault.

When you do something wrong by the client, admit your mistake. This isn’t like confessing to a crime, just admit what you did and try to fix it. Being obstinate and trying to lay blame on your client is only going to exacerbate the situation. I’ve had clients over the years when dealing with plan providers, that their animus for an error is only because the provider refused to admit it. I’ve had a relative who would rather die than offer an apology. An apology isn’t legally binding, it’s a sign of empathy.