The Rosenbaum Law Firm P.C. Blog

As a retirement plan provider, you meet a potential client and you just do so well in the meeting that you think there should be no way that you’re going to lose this prospect. Yet you get the call that a competing provider got the job and you’re just shocked that you lost to that person.

Sometimes you lose because of all the decision-makers you talk to, it might be one decision-maker that felt the need they had to exercise control. They weren’t concerned with picking the best provider for the plan sponsor, they were just interested in flexing their muscle and picking whom they wanted to pick.

When I hear about a plan provider flabbergasted that they weren’t selected in a process they thought they won, I always relate a story where I say I was the most insulted in the 22 years of being an ERISA attorney and it shows you the essence of someone wanting to be in control.

I’ve told a story quite a few times, probably too many times. I was working at that semi-prestigious law firm as an associate and I was asked by the human resources director to look at our 401(k) plan.

Our 401(k) plan despite having an ERISA practice had one of the worst plans I’ve seen. The human resources director was a plan trustee and decision-maker except it didn’t appear she made a decision in 10 years because the plan had no financial advisor, no investment policy statement, no review of fees, no education to plan participants and no change of investments for 10 years.

I told her the first thing she should do is find a new financial advisor. With my many contacts in the business, I gave her a list of 2-3 advisors to contact. Of course, she hired the advisor that the Fidelity representative in the area (who I recommended the human resources director speak to) recommended.

The human resources director and the new financial advisor told me up and down that they were happy with the current third-party administrator (TPA) and I was fine with that. The Fidelity representative was there when needed, I thought. Anyway, the human resources director finally discovered the plan had revenue sharing and flipped out. So without consulting me or contacting me, they went through a process to replace the TPA with the advisor making recommendations. Well, they selected a bundled insurance company provider as a TPA and it certainly wasn’t Fidelity despite the representative’s help in getting the advisor that gig.

I was offended because I thought being the in-house 401(k) expert, I should have been consulted because I believe you should always get an insight from the expert.

I got the last laugh many years ago when another trustee from the law firm called me years after I left, asking to help the plan go through a huge error caused by that insurance company TPA. I was all ready to go in and help fix the mess of that 401(k) plan again until the human resources director (after having been lambasted over this for the last 6 years by me) put an end to it. Again, sometimes it’s all about someone wanting to exercise control whether they are the right person to have control and regardless of whether they make the right choice or not.

Since I’m a big fan of business and human interactions, I’d love to throw out another management principle I’ve thought about based on my work experience working as an employee for both third-party administration firms (TPAs) and law firms.

I’ve worked as both an employee and an employer and I’ve worked as a union lawyer. I have empathy for both sides because I see what they go through, the employer-employee relationship is a constant struggle in the sense that I’ve never met an employee who thinks they get paid too much and I’ve never met an employer who thinks they pay their employees too little.

I always joke that I would rue the day I’d have to hire an employee because I was an employee once too. I say that because I look at my track record as an employee. Lots of job changes and the problem is that I had the arrogance to suggest that my employers didn’t know what they were doing and I was right most of the time. That being said, my biggest problem is that I never felt I got the appreciation as an employee that I deserve, and when I think of employees who didn’t get the recognition and appreciation that maybe they were entitled to, I think of who the Walter principle is named after.

People are very sensitive in nature because they have feelings and based on who they are, they can take any slight as some sort of insult even if that’s not really the case. When I worked for a TPA, I worked with a paralegal named Walter. While some may consider it a negative, Walter had no filters, he’d tell you exactly how he’d feel about you. What worked well with someone like me who doesn’t have such a huge ego, that didn’t necessarily work well with other people.

When I first met Walter, he was at the end of restating all the plan documents for the laws that had the acronym of GUST. I was hired as another attorney while there was a head ERISA attorney whose compensation was a percentage of the legal document billables. It was known from the get-go that adding me to the mix was that Walter or the head ERISA attorney was going to get the ax.

While Walter was a paralegal, he knew more about plan documents that the top ERISA attorney, I was even amazed by the attorney’s lack of knowledge especially as it pertained to something as small as the safe harbor plan rules. Walter was a workhorse, he told me how he spent 10-12 hours a day churning out plan documents.

Walter told me a story that pertains to the very concept of the Walter rule. Walter was a salaried employee and there were times he would stay way past the quitting time of 5:30 pm, sometimes ending work at 9 pm. So the chief operating officer of the TPA who had no empathy for any employee asked Walter one day why he was leaving early. Walter wasn’t feeling particularly well and the COO stated that the office hours were 8:30 am to 5:30 pm. Walter said that he was staying at work until 9 pm most nights and the COO stated that office hours were 8:30 to 5:30 pm. Needless to say, Walter never stayed working after 5:30 pm again.

When I replaced the head attorney seven weeks after arriving, it was an absolute disaster because there were so many outstanding inquiries and so many plans that weren’t submitted. Thanks to Walter’s help, we survived. So the next holiday party, the boss lauds me for my work in navigating the legal department without any issues from the Internal Revenue Service. The boss makes the fatal error of not thanking Walter specifically even though he mentioned the legal department. So for the rest of the party, Walter was upset because he felt he deserved some of that recognition. He eventually got furious and claimed that part of the clock I got as a Managing Director of Legal Services belonged to him. Again, Walter had no filter and I should have expected that instead of being angry at him. He no-showed the next day as I was starting a new project to get some ancillary plan amendments out. I took at what he did as a personal insult instead of thinking about his perceived slight at not getting recognition, I took what he did personally even though he was lashing out at the bosses who consistently ignored him and he never forgave them for cutting his salary after I became the top ERISA attorney. When they wanted to let Walter go after the restatement process was over, I didn’t protest even though I got no raise for taking on all his work.

The Walter principle is ignoring the needs and feelings of your employees and taking them for granted. Every employee has his or her own little quirks and nuances and sensitivities. Employees are human beings and they want to be appreciated. Appreciation isn’t all-just about pay and benefits, sometimes it’s as little as a nice word of appreciation. A simple thank you goes a long way because no matter the position, an employee wants to feel appreciated. Avoid the Walter principle of taking your better employees for granted.

When your practice is successful as a retirement plan provider, you’re going to want to hire people who work outside the retirement plan business to help you manage your firm because the day to day running of a business doesn’t just need someone who is experienced about retirement plans. Hiring a chief operating officer or office administrator is extremely important for growing any business and you’re going to want someone who is experienced in helping run a business.

I’ve worked for a number of businesses over the years and the most smoothly run businesses are usually the ones where the owners seek outside help in many of the important business functions like practice management and Human Resources,

When you hire someone to help with the day to day running of the business, you need someone who has the experience in dealing with the nuts and bolts rather than someone who likes to talk and write about practice management without actually practicing it.

In the 12 years that I worked for someone other than myself, I worked with hundreds of different employees including bosses, people on my leadership level, and those who worked below and I have to say the co-worker I liked least was the law practice administrator at a law firm I worked at, called Fred.

Fred was the law firm administrator or at least he claimed he was. Other than reminding attorneys to submit their timesheets, he did very little in helping the managing attorney run the firm. He tried to act as the gatekeeper to the managing attorney, but all he was, was a snitch. I remember him telling me that I should send a proposed client solicitation letter to him so he could edit it and send it off to the managing attorney so it would help with the process. So I drafted a solicitation letter to Fred and he never edited it, he actually gave it to the managing attorney and I had to get an earful from her on how bad it was. I remember Fred once telling me that my goal of starting a national ERISA practice is one of the ones he was concentrated on expanding for the Firm in 2007. I’m still waiting for him in 2020 to help.

My biggest gripe about Fred is his use of the marketing department to publish his own articles. Now I’d write an article for the firm to get clients or build relationships with plan providers. In the two years I was there, I’d write three articles, which is less than my haul at my practice in a week. The problem was that not only did my article have to get approved by three different partners. I had to deal with the fact that Fred was clogging the marketing department with his articles. The problem with his articles is that it had to do with law firm management and that’s not one of the businesses that my law firm was in. We were in the business of law and his articles on law firm management weren’t going to draw us a dime. Fred was using law firm resources to prop up his own image as some sort of law firm management guru, which he wasn’t. No one in the firm or the marketing department would say anything because he supposedly had the managing attorney’s ear. He’d write an article a month, which was wasting law firm resources that could have easily been spent publishing articles from attorneys that could help generate business.

The production of his articles ended at some point and I think it coincided with the fact that I started my own firm and I would write articles lampooning what he was doing. I knew he was reading my work because he was accosting members of the marketing department, accusing them of egging me on in my articles which weren’t true because I don’t need any help in getting egged on. Needless to say, Fred moved on from that law firm, and of course, moved on to a larger law firm where he tweets articles he doesn’t write and he’s not misusing that law firm’s resources to publish his articles.

The point is that you need to hire the best of the best to help your practice, not some narcissist who thinks they’re a celebrity in their own right when all they are is a fan of the concept of practice management without practicing it.

While I went to law school for a law degree and stayed an extra year to get a tax LLM degree, my feelings about the law are as simple as: “the rules are the rules are the rules.” Maybe it’s my stubbornness, but I believe that any policies, rules, regulations, and laws have to be adhered to. It’s not just about the rules regarding retirement plans, it’s also about the policies and procedures put in place at the workplace.

If you run a business, you need to put rules in place at the workplace to avoid anarchy in the workplace. I always say that one of the reasons I try to avoid hiring an employee is that I was an employee once too and I’ve seen firsthand how businesses became like summer camp when the bosses show the example by leaving early on Friday afternoon or are the first ones to leave when the offices have to close for inclement weather (sorry Dan).

Rules are about keeping order and adhering to the rules in the workplace is a sign of respect and respect for the leadership in that workplace. The problem with rules is when they are being completely ignored or when there is selective enforcement of those rules.

If as a boss, you tell people that they shouldn’t be conversing on their cell phones at work unless it’s an emergency, the rule has to be implemented fully. Allowing people to talk on the cell phone to chat with their friends make the rule an absolute joke and also make the people who implemented a rule like that, look foolish as well. The same can be said if the rule is selectively enforced and employees that the bosses like or are afraid of are given a free pass while the rules are enforced against others. I can assure you that from a labor law point of view, selective enforcement isn’t good.

Respect is something that’s earned and when you lose the respect of the workforce, it only makes your role as a retirement plan provider that much harder because people work harder for people they have respect for and the inmates run the asylum if they don’t.

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

As a child, you’re usually told by your parents that they just want to hear the truth and that telling the truth is going to carry a far less punishment than if you lie and try to hide whatever bad thing you do.

The Internal Revenue Service (IRS) can act as parents when it comes to retirement plans as it pertains to the Internal Revenue Code, while everyone has the fear of the IRS as people do with their parents, they just want the truth too. Over the past 18 years in practice, I’ve noticed the IRS’ desire for plan sponsors to proactively fix any plan errors as they keep on making their Employer Plans Compliance Resolution System (EPCRS) easier for plan sponsors to use. The IRS has reduced the presumed penalty amounts that they now call a fee. They have produced model forms that make submissions easier for us retirement plan professionals.

The IRS when it comes to compliance, understands that retirement plans will make mistakes and their voluntary compliance program is the avenue where they would like to see plan sponsors just fess up voluntarily.

IRS compliance is essentially the carrot and the stick. The carrot is the EPCRS. Plan sponsors who identify plan errors will be wise to take the carrot or they will suffer the consequences of the stick. The stick is the use of plan audits to discover plan errors. If an IRS auditor discovers a plan error on their own, they aren’t as forgiving as the EPCRS. Penalties for plan errors discovered on the audit are way more than anything a plan sponsor has to shell out in legal fees and the EPCRS Program fee if they corrected the error on its own. We all love honesty; the IRS does too. Hiding plan errors instead of voluntarily correcting them are going to be far costlier when discovered by the IRS on their own.

Plan sponsors should treat the EPCRS as a confessional booth where they could confess their “sins” as a plan sponsor when it comes to Internal Revenue Code errors and be done with it rather than the almighty IRS swooping down and punishing the plan sponsor for those sins.

I had a contractor work on my house for a couple of projects. Frank installed a new front door, installed a garage, re-did the sheetrocking of a few rooms, and installed a new kitchen. We thought he was dependable and would never believe that he would take advantage of us.

As part of mold remediation, we had to sheetrock the den. I thought the job was about $9,000 to $10,000. Frank wanted $14,000. I thought it was high, we found another contractor who would do it for $9,000. We would never know we were paying too much unless we benchmarked Frank’s proposed fee. Who knows how much we overpaid on the other projects?

Competing plan providers hear it all the time from prospective clients all the time, how their current provider would never overcharge them. Unless a plan sponsor benchmarks the fee they are being charged (which is their fiduciary duty to do so), how will they ever know?

Benchmarking the fees you are being charged is not about the lack of trust in your providers, just exercising their fiduciary duty. It’s OK to have faith in your providers, but not blind faith.

Overpaying Frank was our mistake and we’re out money, overpaying your plan providers is a breach of fiduciary duty and possible liability from plan participants.

They often say that the road to hell is paved with good intentions. I don’t know who said it first (I heard it was originated with St. Bernard, the saint, not the dog), but perhaps they were a 401(k) plan sponsor that had a loan provision that did the plan a lot of harm.

While the idea of a retirement plan is for a savings vehicle and any access by the participant to that money defeats that purpose, I like offering the provision so that a participant can leverage it when they are in a cash bind.

The problem with the loan provision is that I have come across too many compliance issues with it that have caused plan sponsors lots of grief. The grief usually involves the requirement that the loan is paid back on at least a quarterly basis or be considered a default, where the participant is required to receive a 1099 form for a deemed distribution. This error is a result of the third-party administrator not keeping tabs on the loan. This may be a result of an incompetent administrator, incompetent plan sponsor, or as a result of the plan offering multiple loans. Any loan that does not meet any of the plan loan requirements is considered a prohibited transaction, which risks the plan’s tax qualification

One would think that the role of a retirement plan financial advisor is to pick plan investments. Most plan sponsors think that way and some financial advisors think as well. Some financial advisors promote their brilliant picking of actively managed investments and I think those that do miss the boat of what the role of a financial advisor is.

Sometimes, I see the role of a financial advisor as to the concierge at a hotel. The concierge is supposed to fix any issues and score you the sold out tickets to the show you want to go. While the role of a financial advisor isn’t the same as the concierge, it is similar because it’s a position of service. If you have a problem with your third party administrator or ERISA attorney, it’s usually the financial advisor that is called in to help.

Again, picking funds for a participant or trustee directed plan is only part of their job. A good financial advisor will help the plan sponsor pick investment options, but create a process that justifies the selection of those investments. It’s the development of an investment policy statement (IPS), a review of investments against the IPS, and offering participant education and/or advice. Too many advisors pick a fund lineup and never see the client again, but they collect their quarterly fee. Those are the financial advisors that are going to get swamped because you see more financial advisors who get their role, limiting the plan sponsor’s liability in the fiduciary process. No ifs, ands, or buts.

ERISA §404(c), is the code section that may limit a plan sponsor’s liability in retirement plans where participant directs their investments. There are many people in the marketplace that have guaranteed that plan sponsors won’t get sued with 404(c) compliance and others have guaranteed that plan sponsors will get sued if they are not fully compliant.

I got a chuckle many years ago when a retirement plan “expert” who is not a financial advisor, actuary, third party administrator or ERISA attorney, claimed that people like me create a fear factor within the retirement plan industry to generate business with no evidence to support it.  It was a good laugh because as an ERISA attorney who charges a flat fee for most of my services, I get paid whether the plan has fiduciary liability issues or not.  My Retirement Plan Tune-Up plan review only discovers errors that are there. As far as evidence goes, like Justice Potter Stewart, I know plan problems when I see it. How many retirement plans out there have compliance issues? I don’t know and since most compliance issues only become compliance issues when they are actually discovered, your guess is good as mine.  I guess the same person who thinks retirement plans have no problems probably thinks that all husbands are faithful because I have no evidence to determine how many wives are being cheated on when they don’t know it.

Section 404(c) compliance or ignorance is not a guarantee on liability issues. There are no absolutes in the retirement plan business and even if a plan sponsor fully complies with Section 404(c), there is still always a chance than an irate employee may sue the plan fiduciaries even if they have absolutely no case. Whether a plan sponsor is vigilant in their duties or not, fiduciary liability and responsibility can really never be fully eliminated. It’s a threat that is always there.  All a plan sponsor can do is implement good practices like annual reviews, semi-annual or an annual fiduciary review, and regular plan enrollment/education meetings to minimize as much potential liability as they can. That is why plan sponsors should always purchase some fiduciary liability insurance because there are no guarantees in life and in plan compliance.

Plan sponsors need to follow a prudent process. As I say, a prudent process is not a full proof process.  I don’t need any evidence to back that out.