The Rosenbaum Law Firm P.C. Blog

I get along with people for the most part because I make the effort. It’s also a lot easier to function in the retirement plan business when you have more friends than enemies. Unfortunately, there has been a number of personal and business relationships that over the years that fell by the wayside and the common denomination between all of these relationships was a lack of communication. Aside from this job, I walked away from the greatest job I had because I couldn’t tell the guy who the company was named after that his partner of 20+ years was incompetent and held a grudge against me because he felt I was a threat to him. As a plan sponsor, you can’t have relationships fall by the wayside if that’s going to hamper your role as a plan fiduciary.

The most important thing for a plan sponsor is to have communications with the plan providers and plan participants. Constant communication that is clear and understandable goes a long way to avoiding litigation or governmental penalties.

Working with your plan providers, make sure you understand your plan providers and if they speak ERISAese like many ERISA attorneys and actuaries, ask them to spell it out. If they are speaking in tongues, get them to speak in English. Let them tell you what you need to know to keep the plan running correctly and efficiently. If they can’t do it because they think they need to speak jargon to justify their bill, get providers who will speak in English.

Communicate with your plan participants, both with required notices and with appropriate education. Giving out Morningstar profile like the h.r. director of my old law firm did, isn’t the right form of communication (. Getting them the appropriate education and advice is.

I use Twitter for both business and pleasure. It’s a great way to promote all my businesses and I have developed friendships with quite a few people who are famous and many who are not.

Recently while interacting with a celebrity friend (no need to name drop), someone contacted me through Twitter and wanted free legal advice about things that had nothing to do with ERISA. I don’t go to my favorite pizza place and ask for a free slice, but when you are in the service business, people have no issue with asking for free advice.

In my practice, I always try to help plan providers out by helping them out and answering their questions and issues on the house. Very rarely, do people take advantage of it? I only know 2 that did that over an 11 year period where they wanted real actual legal work (printed product) and not pay for it. I always suggest that you should never do anything of substance for free, but developing a relationship by offering free advice and small help does go a long way. However, you need to separate those people that are worth developing and the schnorrers who want it all for free.

You must know about the shoemakers’ children and how they go barefoot and have no shoes. In the retirement plan industry, we have retirement plan providers and their employees’ retirement plans.

I know, I have been there. I’ve seen some third-party administrator I once worked for didn’t have a great plan, it was often alleged we switched platforms to salvage our premier pricing with a certain insurance company. Don’t know if it was true, but that’s what was alleged.

So for me, it’s no surprise that mutual fund companies are being sued by former employees over their own 401(k) plan. While I don’t know all the facts and these cases will be decided in the courts, one fact (if true) fascinates me.

I often waste time analyzing irrational behavior through rational eyes and I always ponder: “what were they thinking?” So when I hear that part of the complaint is that all of the mutual funds in a mutual fund company’s plan were funds from that fund family, I ask: “what were they thinking?”

When you have thousands of mutual funds out there and hundreds of mutual fund companies, it’s just amazing that any plan sponsor (whether it’s a mutual fund company or not) thinks it’s prudent that every fund on the plan’s lineup is from the same mutual fund company. It doesn’t look right and it doesn’t look prudent, especially when there is no mutual fund company that has superior success in every sector of the market. In addition, any plan that only has funds from the same mutual fund company is often being administered by bundled providers who are mutual fund companies (i.e, a plan being administered by a fund company with only those company funds in the plan). How is a plan sponsor able to offer a rational explanation that it was prudent to select mutual funds from one company? I don’t think they can, especially when the mutual fund company is one of the plan providers.

Often in the retirement plan business, if it doesn’t look right, there is usually something wrong. Any plan using the mutual funds from only one mutual fund company is a plan with something wrong.

I have been a New York Giants football since the days of Ray Perkins, Brad Van Pelt, and Joe Danelo. 4 Super Bowl victories have been far more rewarding than my time as a Mets fan.

Thinking about football reminded me of a client my employer, a third-party administrator was trying to smooth out a relationship with the new benefits manager of a law firm with $25-30 million of assets in their 401(k) plan. Without any prodding by our firm, this benefits manager said he was a Jets fan and he circled out from a schedule of games of the ones he would like to attend. That was the benefits manager’s message that he wanted my TPA to buy him Jets tickets and the TPA got the message by buying these tickets. Needless to say, that law firm was still a client for many years after.

Like Don Fanucci in Godfather Part II, there will always be plan sponsor representatives that would like their beak wet. This type of bribery is something that will always be available in the retirement plan marketplace, but it’s up to the plan sponsor and its providers to make sure that any gifts are de minimis to avoid any prohibited transactions and under the board conduct that could put the plan sponsor in danger.

As a plan sponsor, you need to make sure that there are checks and balances. Having one person making all the decisions is likelier to be prone to bribery and kickbacks than a situation where a committee makes the decisions. Any guidelines that restrict what gifts can be made and requirements of plan providers to report these transactions (just like labor unions and their providers must do annually) will go a long way to make sure that the selection and retention of plan providers are above board.

The warranty in the electronics business is gravy for the retailers who sell it. You’ll be surprised how many people pay $20 to get a warranty on a $100 Blu-Ray player. When Best Buy was going national, they advertised how they wouldn’t sell warranties and then realized that they couldn’t turn down all that free money.

A warranty is like insurance, so you should only insure those things that have a high-cost replacement. You insure your health, your life, your house, your car, and some appliances worth insuring.

This isn’t another diatribe about the fiduciary warranty that insurance companies used to give away for free even though their main business is insuring risk for a fee.

This about plan sponsors who don’t insure their risk by buying fiduciary liability insurance or buying a plan service that could review their plan expenses and/or their plan document/administration.

Fiduciary liability insurance helps protect plan sponsors who find themselves also appearing as defendants in a plan lawsuit filed by an aggrieved plan participant in a town near you. I had clients sued in a class-action lawsuit where the insurance company paid $900,000 for a $1 million legal fee (there was a $100,000 deductible) and this plan sponsor won their case.

So many plan sponsors don’t want to pay for a plan review that can help them identify plan issues they wouldn’t ordinarily find unless they were converting to a new provider. I have a plan review called the Retirement Plan Tune-Up for $750 and I can probably count on one hand how many I do a year. When I talk to plan sponsors and advisors, they seem interested but they treat a plan review like a trip to the dentist; something that they will avoid until it’s too late.

Spending some shekels on a fiduciary liability policy and a plan review is certainly well worth it to avoid greater harm later.

In sports and in business, you’re only as good as the team that you are on. I have been on some good teams and not-so-good teams, so I know that sometimes I was only as good as an ERISA attorney if my fellow employees were good as well.

So I am often surprised how financial advisors are not conscious of the team they need to help their clients or are very ho-hum about the team they select.

So while financial advisors don’t have the time to learn about plan design or fiduciary liability issues, they need to work with the experts that do such as a third-party administration (TPA) firm and an ERISA attorney.

A big part of my practice is working with financial advisors (for free) in developing a team approach in working with their clients and potential clients. That approach always requires the use of a good TPA and the use of a TPA will depend on location, cost, plan type, and plan size.

Plan sponsors and their financial advisors, for the most part, don’t know the value of a good TPA until they replace a bad TPA. A good TPA will administer and record keep the plan correctly, which will eliminate potential fiduciary liability and plan sanction/disqualification. In addition, the most important function of a good TPA is plan design. Plan design to me is an art or a game like Chess. It’s also like logic in 9th-grade math. Too often, a payroll provider or a bundled provider or the not-so-good unbundled TPAs treat retirement plans as if they came off an assembly line.

In my mind, there is no cookie-cutter approach to retirement plans in their design and their plan documents. Every plan sponsor has different employee populations, needs, and financial resources. An ERISA attorney and/or a good TPA will sit down with the client to review their needs for a new plan or to improve an existing plan. Based on the information collected, the ERISA attorney and/ or the TPA will develop a retirement plan design that will fit the needs of that specific client. That design may be a safe harbor plan, a new comparability plan design, or the use of another plan like a defined benefit plan or a cash balance plan. Through 23 years in the business, I have seen retirement plans maximize contributions for their employees and/or correct administrative errors by the use of a good TPA.

I have had a client for 17 years now and it was as a result of a meeting that a financial advisor brought me in, for a potential client he was trying to recruit. The plan was being administered by a payroll company. The plan failed the deferral and matching discrimination tests by a wide margin. The owner of the company was getting a refund of $10,500 of her $12,000 deferral at that time. A review of the test by the payroll TPA was that the plan could have corrected the failed discrimination test by adding a $7,500 qualified non-elective contribution. Even though it was there on the testing information, no one bothered to highlight it to that company. Needless to say, the client paid the $7,500 corrective contribution, avoided all the refunds to the highly compensated employees, and implemented a safe harbor plan design the very next year, This client has been the client of the financial advisor and myself ever since (she thinks we are geniuses) because of this team approach.

I have seen financial advisors grow business with the use of a good TPA and I have seen advisors lose business because of referring clients to a bad one. As I said, you are only as good as your team, so finding the right ERISA attorney and TPA is beneficial for helping a financial advisor grown and retain their business.

The worst thing you can do is to handle things that you can’t. The one thing that plan sponsors can’t handle and shouldn’t is when they are contacted by the Internal Revenue Service and Department of Labor for an audit of their retirement plan.

Calling an ERISA attorney is the way to go because plan sponsors can’t handle it on their own. This isn’t a home project from Home Depot, this is something they can’t handle on their own. Plan sponsors don’t have the experience to handle it on their own and usually offer more information than they need to provide, which can land them in trouble.

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

My latest newsletter can be found here.

The worst thing you can do is to handle things that you can’t. The one thing that plan sponsors can’t handle and shouldn’t is when they are contacted by the Internal Revenue Service and Department of Labor for an audit of their retirement plan.

Calling an ERISA attorney is the way to go because plan sponsors can’t handle it on their own. This isn’t a home project from Home Depot, this is something they can’t handle on their own. Plan sponsors don’t have the experience to handle it on their own and usually offer more information than they need to provide, which can land them in trouble.