The Rosenbaum Law Firm P.C. Blog

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

As a 401(k) plan sponsor, it’s not hard to lose touch with former employees who still have an account balance in your Plan. The problem is that as a plan fiduciary, you just can’t let that money sit without trying to locate these participants.

Every once in a while, you need to identify missing participants (they are missing since you can’t locate them). Then you should record your methods in trying to locate them.

The Department of Labor (DOL) in Field Assistance Bulletin 2014-01 outlined steps that should be taken to find missing participants:

• send a notice to a participant using certified mail;
• check employer records;
• contact designated beneficiaries;
• use electronic search tools; and
• check public record databases and obituaries.

Thanks to the internet, it’s easier to find missing participants, so you have no excuse by doing nothing.

I rarely talk about legislation because so many bills over the years get proposed with zero action by Congress. It took more than 4 years for Roth 401(k) plans to be a thing. However, I want to take time to talk about something near to my heart.

The Improving Access to Retirement Savings Act—introduced by Senate Finance Committee Chairman Chuck Grassley (R-IA) along with Sens. Maggie Hassan (D-NH) and James Lankford (R-OK)—would expand multiple employer plan (MEP) access to 403(b) plans. It would also clarify that small employers that join a MEP (including a pooled employer plan) may take the small employer pension plan start-up credit for their first three years in a MEP, regardless of how long the MEP has been in existence.

403(b) plan MEPs were never really a major thing because the Internal Revenue Code didn’t say they were allowed and didn’t say they were disallowed, so almost all providers never pursued that road. 403(b) plan MEPs are a terrific idea that are poorly handled by many plan providers because of the non-ERISA flavor of most of them, which means they are loaded with high fees. Most of the worst run non-ERISA 403(b) plans are public school district plans and hopefully, this type of legislation, if enacted, could offer relief to ERISA and non-ERISA 403(b) plan participants.

My latest newsletter for retirement plan providers can be found here.

I’ve been involved with so many small organizations both profit and non-profit in one form or another as an employee, officer, or client. The one thing that is consistent with each organization is that the leadership sets the tone. The culture of the place is dependent on how the leaders set it as to what kind of organization it is. People learn from the top and they will take their cue from their leaders.

Whether an organization is wonderful or whether the employees will stab each other in the back can trace its steps to the acts of their leaders. So that means that if you’re a plan provider and you’re in charge, you’re the one who is essentially going to be the one responsible for what that organization will stand for in the marketplace.

You need to stand for professionalism, respect, and openness for your clients and your employees. Dysfunctional organizations have one thing in common: dysfunctional leadership. One of my favorite sports figures was Al Davis whose Oakland-Los Angeles-Oakland Raiders had the motto: “Commitment to Excellence”. You need to make sure that your organization commits to excellence and dedication and respect for your clients and employees. Anything short of that isn’t good for business.

In British-style parliamentary systems, a backbencher is a member of parliament who doesn’t hold government office and isn’t a spokesperson of the opposition. They’re essentially a rank and file member. However, the backbencher is usually the future of the party.

As a retirement plan provider, your backbench of employees is usually the future of your organization and it’s best to take care of them and nurture them. I’ve been involved with one too many organizations where the backbench is ignored or treated so poorly that they decide to leave. The best example is that semi-prestigious law firm I belonged to which was loaded with some of the best associate attorneys I’ve ever know. Everyone that I know werre rising legal stars and for one reason or another went to greener pastures where their talents could be appreciated.

As a plan provider, you spend so much time in training your employees that you can’t afford to have a revolving door of employees, especially talented employees. I’ve seen too many plan providers lose talented employees who join the competition or become a competitor. I can recall a certain third party administrator where their backbench was stacked with such seasoned plan professionals that it’s an all-star list of professionals that many in the business would know.

The backbench is your future, nurture it or it goes away.

When I worked at that semi-prestigious law firm on Long Island, I used to joke that if the Managing Attorney at the time (sorry Lois) wanted to kill an issue, she’d create a committee for it since a law firm committee would spend 3 months to decide on when to hold their first meeting.

Does a retirement plan sponsor need a committee? Not necessarily, but they do need some documented infrastructure for managing the plan. Whether it’s a full-blown committee or just a handful of decision-makers, it has to be an infrastructure that has been created and documented. It has to be an infrastructure that can make decisions and works. All decisions by the infrastructure need to be documented with minutes.

My concern about committees for retirement plans is like my concern over committees in any other organization. Is the committee a functioning body or is it just something that only exists on paper? Having a committee that only exists on paper is not following the processes that the plan sponsor has created and would be considered a breach of fiduciary duty.

I always say the two worst things you can give people are false praise and false hope. One of the reasons that I started my practice is because I was an employee and for the most part, I didn’t like how I saw employers treat employees especially when it came to acting towards them by giving them sort of fake praise and then taking action against them.

It happened early when I worked at a Boston law firm as a law clerk when I was completing my studies as an LLM student. There was this paralegal there who was way in over her head. I never worked with her, but she looked like a deer in the headlights, so it was Christmas season and she was getting her end of the year review. She told me that her work was excellent and she got a raise. Within two weeks, she was fired for being incompetent.

What’s the point of saying someone is doing a great job when they’re not? I’m sure people will say that the law firm was going to fire her anyway and so what’s the point of telling her that she needed to improve? I have an expression that I don’t like to look bad and I believe that the law firm looked bad in her eyes, looked bad in the eyes of other employees (there was another paralegal who was upset by it), and the leadership looked like a bunch of liars.

Employees won’t improve if you don’t tell them they need to improve. Getting rid of employees and hiring new ones can be an absolute ordeal, so it’s a good idea to salvage what you have. But you can’t salvage something where the employee thinks they’re doing a great job because you told them. Mixed signals aren’t a good idea when managing employees. Morale is an important aspect too. So when you’re firing an employee you’ve told what a great job they’re doing, it will impact the employees that are left.

So if you have staff and they’re not up to par, tell them. Allow them to get better because not having them see it coming is great on Survivor, it’s not great in the workplace.

One of the business philosophies I learned while working for a third party administrator is that it’s a lot easier to lose a client than to gain one. I know that first hand, seeing bad service that gets plan sponsors to fire you and going on sales meetings and how slow the sales process can be.

Building a retirement plan provider “empire” doesn’t happen overnight. You might have started that business at a small desk in an office that you might have rented or able to procure from a family member or business affiliate. It takes a lot of work to slowly build a strong provider practice just like it’s hard to build a new 401(k) plan’s assets into something a provider would look at.

While it’s great to admire your accomplishments in building your practice, you should never lose sight that it’s far easier to lose your stature in the retirement plan business than it was to gain it. You should never strive away from the reason why you got in the business in the first place, providing good retirement plan services to plan sponsors at a reasonable fee. You should never get bogged down in the pettiness that gets plan sponsors so aggravated that they fire you.

You should never stray away from that important philosophy that the client is right as long as the Internal Revenue Code and ERISA.

Paychex created its own pooled employer plan (PEP). Mesirow Financial will serve as the 3(38) investment manager of the PEP, and Mid Atlantic Trust Co. will serve as the trustee.

This PEP makes sense as Paychex is a third-party administrator (TPA) known for small 401(k) plans. A PEP would allow Paychex the flexibility of bunding their micro plans in one PEP solution, which would allow participating employers to delegate the fiduciary duty to the pooled plan provider, as well as having an investment fiduciary (which so many of their micro plans don’t have).