The Rosenbaum Law Firm P.C. Blog

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

When fee disclosure regulations came into being by the Department of Labor (DOL) in 2012, so many detractors of it said it would cause plan sponsors to terminate their plans and there would be a race to zero in fees. The truth shows that it isn’t the case.

A study by the National Bureau of Economic Research showed a benefit of fee disclosure that I never expected: the study found that participants became more attentive to fund fees and to short-term fund performance following the DOL’s regulation.

The study shows that participants became significantly more attentive to expense ratios and short-term performance after the implementation of the fee disclosure regulations. The study observes that index funds may benefit disproportionately from fee disclosure, as index funds tend to be among the cheapest options in many plans. Part of the heightened fee sensitivity in the study’s baseline results may be a result of investors switching from more expensive active funds toward cheaper index funds.

Whenever I hear about someone getting caught with lying about their resume or credentials, I am always astounded. I don’t know why people lie about college degrees they didn’t receive or credentials they didn’t achieve, but I guess the fact is that most people get away with it because people are trusting people and rarely check these credentials.

It happened to me, I used a contractor for a few jobs and assumed that they were members of a highly regarded remodeling association because they claimed that they were. Of course, after a dispute, I find out that they weren’t members of this organization.

I’m a member of the New York, Massachusetts, and California bars. You can look it up. You can look up the credentials of any financial advisor you’re hiring and see whether they have any issues with their license. A third-party administrator (TPA) is much harder to check because anyone can open a TPA shop, so find out information about the folks who run it. Perhaps the principals are attorneys, enrolled actuaries, or have credentials through ASPPA (American Society of Pension Professionals & Actuaries).

Before starting my law firm, I had made many different employer changes over the years to the point that my position as the head of my law firm is the longest time I’ve been employed in one place and that’s only 5 years.

Am I going to blame the employers I worked for? Sure, they were short in the Christmas bonus department and I thought they didn’t have any long-term vision, but the only common thread between these four employers was me. So rather than blaming them for that checkered employment history, the fault lies with me. Some birds aren’t meant to be caged and some people need to work for themselves. So rather than blame them someone else, it’s important to look within.

 If you’re a narcissist, there is no point in reading your article because you’re always right (at least in your mind). If you’re like most of us, you may realize that if you have a pattern of client problems or employee problems or problems with working with other providers, it may make sense to look at yourself. When you look at what you do, you may realize some of the mistakes you made in developing and maintaining relationships. I’ve learned in life and business, growing as a person is just as important, if not more than growing your business.

 So if you’re consistently having problems with people, maybe it’s not them and it’s you.

When you’re young, you’re urged not to quit. Whether it’s little league or scouts, your parents would always tell you that it’s just not OK to quit on a whim.

As a retirement plan provider, there are certain times where you have to quit and fire your client. Usually, it’s when dealing with a plan sponsor client that isn’t listening to your advice and keeping the plan out of compliance. Sometimes, it can just be a situation where you can’t properly function or you’re out of your comfort zone or continuing is a liability threat.

Getting clients is hard to come by, but associating with a plan sponsor that won’t comply with the law is a bigger threat than the loss of any fee.

Several Republican senators have introduced legislation that would allow plan participants who are unable to make contributions to their tax-advantaged retirement accounts in 2020 to make catch-up contributions to these accounts in succeeding plan years.

The Addressing Missed-savings Opportunities for Retirement due to an Epidemic (AMORE) Act (Dean Martin would approve)would allow participants to compare their actual contributions to retirement accounts such as 401(k) plans, 403(b) plans, and IRAs made in 2020 to the annual contribution limits on these various retirement accounts. The legislation would then permit participants to make catch-up contributions in 2021 and 2022 in an amount equal to the difference between their actual contributions and the current deferral limits on these accounts.

As everyone is gearing for the January 1, 2021 implementation of pooled employer plans (PEPs), I keep on insisting that this won’t be the game-changer that everyone hopes.

I think PEPs are a great idea, it finally eliminated the silly Department of Labor (DOL) advisory opinion on Open Multiple Employer Plans (MEPs). I caution that many advisory firms and other plan providers want their PEP. The caution is that like the days of Open MEPs, most of these will fail in accruing enough assets for them to be more cost-effective than a single employer plan solution. If a PEP (like the old Open MEP) doesn’t have enough participants and assets, that annual audit starts to become an albatross around the neck of the plan and the participants who might have to pay $50-100 a head just for the audit.

The most successful PEPs will be those MEPs that make the switch over to become MEPs for more flexibility in plan administration and recruiting adopting employers. Rather than each advisory firm getting their PEP, I suggest looking at larger existing PEPs that will allow these advisors to offer a white label solution and fund menu for their clients. Why try to invent the wheel, when something more cost-effective and workable is out there? Just my two cents. 

After Hurricane Sandy decimated my house with five feet of water downstairs, I needed to replace our hot water heater and furnace. My plumber got us a new hot water heater, but couldn’t find a new furnace. A neighbor had a friend who was an HVAC contractor in Rockland County who could get us a furnace. This contractor claimed that his Rockland County HVAC license allowed him to work in Nassau County because they didn’t license these types of contractors. Since the goal was to get back in the house as quickly as possible, we hired him based on his word.

After this HVAC contractor stiffed us out of the air conditioner condenser as contracted, we discovered that his contractor lied.  He needed a license out here and all the work he did out in our neighborhood was illegal. Had he been licensed in Nassau County, getting the money back for the condenser wouldn’t require a small claims action.

Not hiring a licensed contractor is our poor luck and we bear the burden of that.

When you’re a retirement plan sponsor, you don’t have the luxury of lamenting about that mistake, you’re on the hook for hiring professionals who lie about their credentials because you had a fiduciary duty to check them out. If you hire a TPA who lied about their experience or a financial advisor who isn’t registered, well you’re on the hook for breaching your fiduciary liability.

The rational person in me never understand why any professional would like about their academic and professional achievements, but the rational part of me understands because so few people bother to check it out.

That’s why this industry had someone who claimed he was an independent fiduciary because he told us he was one. This fellow built a name for himself; did a heck of a lot of promotion, but this fiduciary had “no clothes”. His claims about his experience were either exaggerated or fraudulent.  He probably was able to get away with a lot of his crimes for so long because no one (except for a few reporters) was able to expose his inflated and fraudulent credentials. Unfortunately for many plan participants, that came too little, too late. Matt Hutcheson is still sitting in federal prison for his crimes. 

I am an ERISA attorney for almost 22 years, admitted to practice in New York, but don’t take my word for it, check it here.  Even if you hire me because of my no nonsense flat fee approach to retirement plan law, you should check it out.

Many years ago, I was contacted by a bank that had an issue. For 20 years, they didn’t include bonuses as part of their plan’s compensation, even though it was supposed to be included. I told them that the only option was an application to the Internal Revenue Service’s Voluntary Compliance Program. The bank found an ERISA attorney that said they could merely self-correct. Based on the number of years and participants, it’s impossible. They could try to self-correct, but G-d helps them if they were going to be audited.

There will be many plan providers that will act aggressively for their clients, but they fly too close to the sun. Being too aggressive is fine until the Internal Revenue Service or the Department of Labor thinks differently.

When I was a law firm associate, my most painful part was filling out my timesheet. Trying to fill it out before I’d get in trouble with the powers that be was the worst part of the month.

There has to be a better way to bill for a living, but the law firm structure is based on the billable hour to support its bloated overhead even it does more harm to their clients.

When I started my own law practice, my goal was to move away from the billable hour because I thought and still think that clients want to know bottom line how much my work is going to cost them and not have sticker shock when they see my bill at the end of the month. Since I didn’t have a large overhead, a flat fee for me was the best place to go especially since my legal work working for third party administrators was a flat fee.

For many plan providers especially financial advisors, remuneration was based on assets. Registered investment advisors would get paid their flat level and the broker would usually resort to the different trails that mutual funds pay. Is there a better way to be paid? A lot of advisors are pushing for a flat fee or other alternative arrangements such as per participant charge.

For the provider offering it, their flat fee must be an accurate assessment of their work with a profit margin or they’ll cut their throats. A lot of thinking and math has to go into quantify a flat fee when the advisor has always charged an asset-based fee. For the plan sponsors, a flat fee is a great fee to digest and understand, but they have to be wary whether they are paying more than the advisor charging that old asset-based fee. It can be a double-edged sword for everyone involved if one or more parties aren’t careful. I’ve seen way too many advisors who charge a too reasonable flat fee and learn to regret it because they price themselves too low for the work involved.

While I charge a flat fee, I’d be hard-pressed to find a law firm attorney (not a TPA attorney who has no attorney-client relationship) who charges less (especially by the billable hour), but all plan sponsors must determine whether my fees are reasonable too. Plan sponsors can’t take my word for it, their fiduciary duty depends on them to not take my word.