The Rosenbaum Law Firm P.C. Blog

Being an ERISA attorney for a couple of third-party administration (TPA) firms when I first started helps you develop a sense of humor because there are too many people I was associated with who had absolutely zero training when it came to plan administration.

One of my favorite jokes that I created which is something I stole from Chris Rock was “if you want to hide something from an administrator, hide it in the plan document file.” The joke was because I knew very few TPA administrators that bothered to read the plan document. They would just review what the plan specs were on the system. The problem is that often the specs were posted on the systems that were inconsistent with what the plan document said. That relates to another joke, stolen from Rodney Dangerfield in Back to School: “what if the person who put the plan document specs on the systems was a maniac?”

While I worked for a TPA where it wasn’t a maniac who put the specs on the system, but by someone who had some authority and once started in the file room. It was a great rag to riches story except for the fact that she should have stayed in the file room and would blame anyone else but for ineptness. I can never forget the new client who wanted 1 loan outstanding in their plan document because participants were taking out 8 loans each. So I drafted what they wanted, but Ms. File room put on no loan limit on the system. When the advisor found out the error, Ms. File room blamed me even though the document had one loan cap.

When it comes to plan specs, the plan document is the last word except if mistakes were made from the previous restatement. That happens for many reasons, but at least you start from there then something on the recordkeeping system that carries no weight. Of course, many use the summary plan description as a resource. It’s a great resource except when it’s inconsistent with the plan document.

In the end, the plan document is an important resource and it always needs to be made sure that the plan is operating according to its terms.

If there is one famous quote that’s landed me in trouble, it’s one from my favorite football coach Bill Parcells. Parcells was coaching the New England Patriots and he wasn’t getting along with the new owner Robert Kraft because Parcells no longer had a say in player personnel issues. The quote was: “If I’m going to be asked to cook the meal, I’d like to be able to pick the groceries.”

I believe in that quote in the sense that I believe that if I have to “cook” the meal, I should have a say in how the groceries are bought.

When I was the lead fiduciary on a multiple employer plan that was rocked when the previous fiduciary was accused of embezzling money from other plans, I thought I should have a say which third party administrator we should use. I thought that even after making only $125 on the plan and being named in a lawsuit. So I stepped aside and started my own multiple employer plan.

When I was Vice President of my synagogue and I did more than a proportionate part of the work, I thought I should have a say in which other vice presidents get nominated. The fact that they were bringing back a former President as Vice President who did nothing to increase membership, did nothing to improve the Hebrew School and negotiated a terrible contract with the caterer got me upset. I wasn’t consulted and I just didn’t want to work with him because his priorities were different than my own since he had zero interest in increasing our membership base and was only concerned with cutting costs. So I quit.

I’m not saying that you should quit what you’re doing, but that when you do a disproportionate amount of the work and you’re not happy with the way the business is being conducted, you should have some say.

As far as the Patriots go, Parcells quit and they hired Pete Carroll who didn’t work out after 2 years. Then they hired Parcells disciple Bill Belichick and gave him a say in how the groceries are bought. 6 Super Bowl wins later, Parcells was right even though it worked out for his disciple instead.

People don’t like to be accountable for the most part. It’s just human nature to blame someone else. Heck, I used to do it at work and I still do it at home.

When I was working at that law firm and I wasn’t able to draw enough business to my practice, I can fault the law firm partners who didn’t refer me work or the marketing office couldn’t help so much because they were doing work for other and the process took 6 months to get an article published. Ultimately, it was my fault that I didn’t get it done. So I dusted myself up, went on my own, and the rest is history (I mean it’s in my eBook).  I changed what didn’t work and what I wasn’t allowed to do (social media) and I was able to support myself on my own.

Too often plan providers get in the business of not admitting fault when they make mistakes and it’s frustrating for plan sponsors because sometimes all they want is a simple apology.

An apology is not an admission of guilt, it’s just an expression and sometimes just saying you’re sorry is what minimizes small disagreements into becoming World Wars.

I know firsthand, I grew up in a family where you think an apology was draped in the blood of the one who offered it.

Being accountable and admitting when you’re wrong is just good business skills. It’s a great way to retain clients because it’s the unhappy clients who leave.

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

I’m not very popular, never have been and never will be. It’s probably my personality or just not wanting to go with the flow, but I’m not a popular guy. Ask my family, ask my former bosses. While I won’t win popularity contests, I’ll make it up by doing quality work and doing my best in my relationships with my clients and my referral sources. But popularity isn’t everything.

You should never associate popularity with quality because many times, they are mutually exclusive. Even though Apple computers are far superior to Windows-based PCs, look who sells a lot more. Some of the most popular food establishments, movies, products, and services may be popular, but not be the best of the best.

So when a plan sponsor chooses a mutual fund, a financial advisor, a third-party administrator, or an ERISA attorney, avoid just picking a provider because they are popular or have so many plans or assets under management. Look for quality over quantity. Look for the best, not the most popular. A lot of things popular in this retirement plan business isn’t very good.

As a retirement plan provider, you need to understand where there is a conflict of interest if someone you know hires you. Whether it’s a family member, golf club, church, or bank where you serve as an advisory board member, you need to identify any potential conflicts of interest.

While a plan provider needs to understand the prohibited transaction rules under ERISA and the Internal Revenue Code, a plan provider should also identify the non-retirement plan rules on conflicts of interest. For example, if you are on a private school committee and you are hired as the school’s retirement plan advisor, you may not have an issue with the prohibited transaction rules, but you may have a problem with the school’s rules on conflicts.

Nepotism is as bad as cronyism, so getting hired as a retirement plan advisor because you’re related to a decision-maker is also a potential problem. It might be Kosher with ERISA and the Internal Revenue Code, but it may not pass muster with the courts and/or the Department of Labor under review.

Just because something might be OK with retirement plan rules, it may not be good for the organization or person that did the hiring.

Another thing that sets plan providers apart is the work ethic, whether they will do what’s needed to be done or do it as minimally as possible.

If you’re working with a third-party administrator (TPA) and it’s their job to bring a plan aboard, some will just not help you in what you need to get done especially if you’re working on their behalf. A great TPA is going to have all hands on deck and help you in any which way they can.

One of the most annoying parts of being an ERISA attorney is dealing with surrender charges for clients who want to escape an insurance provider before the contract is up.

The administrator of the D.L. Markham, DDS, MSD, INC. 401(k) Plan has filed a lawsuit against the Variable Annuity Life Insurance Co. (VALIC) is being sued by D.L. Markham, DDS, MSD, INC. over fees he says were improperly withheld from plan assets in a class action lawsuit.

In 2018, VALIC was hired by the plan sponsor to maintain the plan on VALIC’s retirement platform by entering into an agreement with VALIC whereby it would provide administration, individual services and investment products.

The contract was an annuity contract selected by the plan sponsor for which VALIC serves as the issuer and contract recordkeeper of the assets invested under the contract.

Less than 2 years later, the plan sponsor decided to terminate the plan’s contract with VALIC and select a successor plan service provider.

VALIC informed the plan sponsor that there was a 5% surrender charge on transfers out of the contract on amounts contributed in the previous 60 months, which would effectively cover all assets to be transferred by the plan. Only VALIC is expressly authorized to waive the surrender charge.

The plan sponsor claims they had actual knowledge of the surrender fee and VALIC refused to waive it

In August 2020, all plan assets were transferred from the VALIC platform to the successor service provider’s platform. A surrender fee of $20,703 was retained by VALIC, representing approximately 4.5% of the pre-fee account balances.

This should be an interesting case because VALIC certainly has surrender charge language in their contract (every insurer does that imposes a surrender charge) and unless a federal judge says that such clauses violate ERISA, I’m not sure how far this survives a motion by VALIC for summary judgment.

I love when studies on retirement plans state the obvious.

According to researchers from Vanderbilt University; the University of Texas at Austin and the National Bureau of Economic Research (NBER); and the Board of Governors of the Federal Reserve System, revenue sharing paying mutual funds are more expensive than funds that don’t pay them.

The results indicate that revenue sharing translates into higher expense ratios in the retirement setting, while direct fees are not significantly different across revenue-sharing and non-sharing plans. Consequently, participants face higher all-in fees in revenue-sharing plans.

Higher fees are not offset by higher returns, according to the study.

You don’t need a brain surgeon to figure that it’s actively managed plans that pay revenue sharing and these funds have a higher expense ratio that can pay revenue sharing to the recordkeeper.