The Rosenbaum Law Firm P.C. Blog

The Matt Hutcheson and Jeff Richies of the world that steals from 401(k) plans where they are the fiduciary will ultimately get caught because when you steal millions, the plan sponsor and other plan providers will notice.

Someone stealing from a participant account can steal a little over time and it might be years before it’s discovered. A federal grand jury just indicted someone on charges that he fraudulently obtained access Boeing employees’ retirement accounts. The man is accused of stealing this money by making hundreds of thousands of dollars’ worth of fraudulent money transfers to himself.

Hoa Vo, 30, whose aliases include “Hoa Thanh Tran Vo” and “Andy Vo,” of Santa Ana, is charged with three counts of bank fraud and one count of aggravated identity theft.

In 2019, Ho Vo obtained the personal identifying information of Boeing employees and information about their retirement accounts. Vo then allegedly made fraudulent withdrawal requests for checks and electronic money transfers totaling hundreds of thousands of dollars from the VIP accounts of various Boeing employees. Vo then placed holds on these employees’ mail with the United States Postal Service.

Once the mail was held, Vo then intercepted the mail by picking it up at the local Post Office. Vo obtained approximately $360,847, the indictment alleges.

While every large 401(k) plan is a target for a class-action lawsuit over costs, I believe the years of litigation and fee disclosure regulations will exhaust the number of class-action lawsuits, as well as courts taking a more negative view of trying to second-guess what a 401(k) fiduciary will do. I call that Peak 401(k) litigation.

Unlike managing attorneys at law firms, ERISA litigators can be very creative in arguing novel legal theories. The latest attempt is trying to claim that participant data is a plan asset. As fee disclosure regulations have assisted in lowering fees, plan providers have been looking to cross-selling as a way to make more money. Through recent cases, ERISA litigators are trying to argue that participant data is a plan asset. The ERISA litigators are claiming that plan sponsors breach their fiduciary duties of loyalty and prudence when they permit plan service providers to profit from the use of personal information of  401(k) plan participants – for non-plan purposes such as “cross-selling” rollovers and other investment products.

It’s an interesting theory, something I never thought of before. It will be up to the courts to buy that argument.

With COVID still in full bloom, I’m concerned over the future of national conferences. While NAPA is trying to hold their postponed event from April in September at Universal Studios in Orlando, they have wisely added a virtual feature for those unwilling to travel. As for after without a vaccine completed and ready for COVID-19, I don’t know what the future will hold for those large industry events. Contemplating a second That 401(k) National Conference, I’m thinking of a virtual only event to maximize attendance, as well as giving the opportunity for plan providers to attend without having to leave their office. Time will tell.

I used to joke that no matter what I did, I could never make my parents happy. The same can be said with any attempt to change the fiduciary rule.

This is going to be the Department of Labor’s (DOL’s) third attempt at changing a rule that has been in place since 1976, way before 401(k) plans, 12b1 fees, and a whole host of conflicts of interests that promulgated the need to look at amending the rule.

Changing the fiduciary rule is one of those things that united us because it will please no one. You have brokerage firms that don’t want any fiduciary role for their brokers and you have registered investment advisors who don’t want a fiduciary standard to be watered down.

With an election year, it’s not likely that there will be any profound change. So everyone will be unhappy for quite some time.

In terms of customer service, I don’t think there is anyone worse than my home school district. The Oceanside school district has a Board of Education with more members with kids on school district payroll than with members who have kids in the Oceanside schools. It seems that unless someone is deriving a pecuniary benefit, they do as little as possible for the students of Oceanside, their parents, and the taxpayers.

Whether it’s long-distance learning or graduation that is affected by the pandemic, the school district does as minimal as possible. With no contested elections and a taxpayer base that still believes it’s a great school district, so it approves the budget, the school district does whatever it thinks it can get away with. Eventually, all good things come to an end and their way of doing business will go bye-bye.

As a plan provider, you need to realize who your customers are and who is paying the bill. You can’t simply ignore the needs of your clients and take them for granted. You’re not the only show in town and a plan sponsor client who doesn’t feel like their needs are being met is simply going to find someone else to contact.

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

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

For me, one of the worst things that any business can have is a sense of complacency; I have spent too many years working at places that were just way too complacent in their work, where so much time was devoted to proclaiming how everybody was so wonderful and so great. If I am so complacent in a business where I think I’m so wonderful, I’m going to retire or ask someone to put me down like Old Yeller.

I don’t think any retirement plan provider can afford to be complacent. The industry is consistently changing and any change breeds more competition. Unless you’re a payroll provider TPA or one of the large consulting companies, you can’t afford to hire a top-notch marketing firm. If you’re like me, you weren’t taught marketing in school. So when I say that TPAs as a whole have lousy marketing, it’s not an insult because most professional firms have lousy marketing because of a lack of resources. Heck, most law firms have lousy marketing and there are quite a few TPAs who have excellent marketing. As a whole, it needs improvement.

So when I say that TPAs as a whole have lousy marketing, I see it less as an insult and more of a challenge for TPAs to get better at communicating with plan sponsor clients and potential clients. Just saying that a TPA can’t do much because it’s a competitive business and this is just how the business they chose to go into operates is just a lazy man’s argument.

I decided long ago that I wanted to build a national ERISA practice, to work with plan sponsors, advisors, and TPAs around the country at a flat fee. I was surrounded by an attorney leadership who thought that my way was the wrong way and that is not how a law firm operates and markets itself. Of course, I went on my own and proved them wrong. I could have sat back and just written it off as Hyman Roth did in Godfather Part II by saying that this was the business I chose. If I did that, I’d hate to think where I would be now.

TPAs can just sit back and be bitter on how the TPA business has turned into, but bitterness and complacency don’t get clients. Thinking outside the box, being bold and being creative goes a long way into getting clients. Sitting back and feeling sorry for yourself is a lot easier than doing something.

Years ago, I had the worst call with a prospective client in the 22 years I have been an ERISA attorney.

This 401(k) plan sponsor was like many prospective clients, poor participation, and paying too much in fees. The plan sponsor was using a reputable provider, but a provider that would be a better fit for plans 10 times their size. The client was paying $100 or so a head plus what looked like an additional 3% in an asset-based fee. This is a plan that was paying way too much.

Why the call was such a disaster was because the plan decision-maker/human resources pro on the call was the one who designed the program with this expensive provider and he stated that he had no interest in changing providers.

So why was this underling in the human resources office so serious? Well, if he designed the program and we have issues with its cost or poor fund lineup or poor participation, he is obviously going to take any criticism as an attack. While plan fiduciaries don’t necessarily have to change their providers, they certainly have s fiduciary duty to check whether fees being charged are reasonable or not.

I know what I know in life, but if I made a technology decision or a financial decision that an expert may question or offer suggestions for it, I’m not going to take offense. But then again, I’m on my boss. 

 So if we are a plan provider or a plan sponsor’s decision-maker, we should understand that sometimes people are so resistant to change or just considering so constructive criticism, because they get defensive. After all, they created that mess. That’s why the human resources director ar my old law firm wouldn’t look at me anymore when I would bump into her in public because she became fodder for so many of my articles.

That is why we should always consider who we contact about looking at their plan and doing a review. If the plan is a mess, we might be talking to the people that caused it.

Over the last 10 years, more and more plan sponsors have opted for environmental and social mutual funds. The problem with these funds is fiduciary concerns since a fiduciary should strive for better performance for their plan. 

The Department of Labor (DOL) provided an update and clarified its investment duties regulation for employer-sponsored retirement plans, such as 401(k)s, that are governed by ERISA. It emphasizes that a retirement plan must focus on financial returns for participants.

The DOL said that its motivation was to provide guidance for plan sponsors/fiduciaries because of the frequent use of environmental, social, and governance investing. The DOL seems too concerned that the growing emphasis on ESG investing may be prompting ERISA plan fiduciaries to make investment decisions for purposes unrelated to greater financial performance.

The DOL said it is not trying to curb ESG holdings, but it is emphasizing that plan fiduciaries shouldn’t increase the cost of a plan or curb its return in order to make ESG investments available.