The issue with 403(b) plans

I always say that as bad as 401(k) plans may be, 403(b) plans are in much worse shape. It didn’t help that the Internal Revenue Service only issued regulations that governed them only 30 years too late, back in 2008. It also doesn’t help that still many 403(b) plans (such as those that offer deferral contributions only) and governmental plans aren’t subject to the Department of Labor’s oversight under ERISA.

While many like the idea of retirement plans that aren’t subject to the provisions of ERISA, it’s needed. Good retirement plan regulation by the Internal Revenue Service and the Department of Labor have helped the rights of plan participants, as well as lowering plan expenses.

403(b) plans not subject to ERISA are governmental plans and plans where the non-profit employer has absolutely no fiduciary control of the Plan. From experience, plans not subject to ERISA are costlier and are poorly run. Heck, up until those regulations, they didn’t need to have a written plan document.

One of the biggest problems with non-ERISA 403(b) plans where there are multiple plan providers. For example, a school district may offer 5-6 different plan custodians who may be an expensive insurance company or a low fee mutual fund company. The problem is that while everyone loves choice, too much choice drives up cost because a plan custodian/ investment provider isn’t going to offer the best pricing if they have to compete against other providers in each school district. I know because I worked for a union that wanted to offer its own 403(b) option to plan members, but the low fee plan providers exited stage left when they discovered they had to compete against 5-6 providers in every school district in a state with over 750 school districts.403(b) plans that are not subject to ERISA are like the old days of the Wild, Wild West because where there are no rules, outlaws run rampant and the outlaws in the 403(b) space are plan providers charging 200 to 300 basis points in an environment that allows it.

My two cents is that 403(b) plan would be in better shape if they were all subject to ERISA and Department of Labor (DOL) oversight.  I won’t be surprised if the DOL will try to regulate the plan from the current Wild, Wild, West.

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Clients who don’t pay aren’t clients

I always believe that the retirement plan business is a relationship-driven business. It’s also a small world of industry where providers know providers nationwide. This belief has certainly helped my law firm practice grow as I’ve always had an open door policy in fielding questions from financial advisors and third-party administrators without nickel and diming them with invoices for services provided.

The problem with any relationship is that it will conclude at one point and knowing when it’s over.

When I started my law firm practice 8 years ago, one of my marketing campaigns is when I advertised my legal services for financial advisors and third party administrators (TPAs) where I would charge a flat fee such as $500-$1,0000 per month in providing general ERISA legal advice. While I haven’t advertised this service as much as I should, I have a few financial advisory firms and one TPA that pay that fee.

The first client I ever signed up for that fee was a Georgia based TPA who eventually thought so much of my work and used my services, that they upped their payment to $2,000 a month. Through some of the projects I worked with them, they became my biggest client in 2012. The owner of the TPA said we’d be rich with his plans for plan design.

When it came time to restating their defined benefit clients for the EGTTRA restatements that were that April 30th, they needed my services and I performed around 40 restatements in less than two weeks time. The $40,000 I billed was around 2 times what I normally billed per month.

Billing $40,000 that month for that TPA client was amazing and it would have been more amazing if I actually collected that money. You see, the TPA was claiming that because of infighting with key employees that left the firm, they would have a hard time in paying that bill all at once.

I’m not a stubborn man when it comes to business relationships, so I’d let them float as long as they gave me work. Pretty soon after that, they couldn’t pay the $2,000 a month anymore. A reasonable businessperson would have referred the matter to collections, but I wasn’t reasonable because I thought that relationship was more important.

When Hurricane Sandy destroyed almost half my home, I was nearly broke. It happens when you have no flood insurance because you don’t live near the water. So I reached out to this TPA and asked whether I’d get paid. I was told I would.

Thanks to the generosity of the Federal Government and whatever savings I had left, we were able to rebuild better than ever. I was chasing that TPA with phone calls and messages on whether there was going to be further work for me. I was promised there would be. But my biggest client in 2011 and 2012 was becoming a client where there were no fees coming in for 2013 and 2014 from them. I should have referred the matter out to collections, but I still felt like the relationship mattered and that there were fees that were going to eventually come my way.

In 2016, I filed a lawsuit against them in Georgia and I won a default judgment against them as they refused to contest the matter in court. As of this day, I have yet to make a cent. My great-grandmother once said that you should never run after the carriage if it’s not going to pick you up. I should have folded my cards and gone to collections earlier because clients who don’t pay your bills aren’t clients. People will try to entice you with further business and promises to pay you and they’ll still stiff you.

In the end, it’s all about teaching a lesson. You do good work, you deserve to get paid. Excuses and promises are nice, but they don’t pay your expenses. Don’t be like me; pull the plug before 4 years pass by.

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Retirement Plan Advisors Advantage

My latest newsletter geared towards plan providers can be found here.

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The Road and Roadblock To Dynamic Plan Provider Marketing

My latest article on can be found here.

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The Rosenbaum Law Firm Review

My latest newsletter can be found here.

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Be patient with possible referral sources

I always talk about my open door policy with financial advisors and third-party administrators where I will help these plan providers out without billing them for their time or actively seeking business. I kind of have that liberty because it’s my own law practice and I don’t have the stress to bill when everything at the end of the month is mine anyway.

The reason that I take the phone calls and respond to the e-mails is the belief that the retirement plan business is a relationship driven business and I learned that from a friend of mine named Richard Laurita. He was the salesman at two TPAs I worked with. Rich was all about developing relationships in this business. I once joked that he probably couldn’t spell 401(k), but he didn’t need to because the relationships he developed over time brought him and his employers business. I follow the same approach and quite honestly, most of the plan providers I have talked to over the past 8 years never brought me business and that’s fine because someday they might. The help I give in these types of conversations are free and I can probably say on one or two fingers how many plan providers abused that free help. I believe that if you help people, they will remember you.

So here is the part where I talk about one of my success stories. There was a registered investment advisor with absolutely no retirement plan clients and he wanted in this business. For over two years, we spoke on the phone and met where he introduced me to people and I introduced him to people, but no business for me. I’m a patient man, that’s what happens when you go to school for 22 years straight. Over time, he took my advice on how he can partner with other advisors and he attended conferences that I suggested he attend.’

Well that registered investment advisor who was honest that he didn’t know much about that retirement plan business and wanted to seek help from those that could, including yours truly, has netted a few retirement plan clients and is now an ERISA §3(38) fiduciary (hiring me to develop his service agreement at a flat fee).

This story isn’t about me. To me, it’s about how plan providers can get ahead just by being honest about what they don’t know and developing the relationships with those that do.

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The Fiduciary Rule is not dead, but extremely sleepy

So many are celebrating the ruling against the Department of Labor’s (DOL’s) fiduciary rule in the Fifth Circuit without realizing what that really means. A Federal appeals court in New Orleans doesn’t have an impact outside the fifth circuit and we’re still likely to hear a Supreme Court case soon since we’ve had the 10th circuit uphold it.

While the Trump led DOL seems very intent on dismantling the rule one way or the other, help is on the way. The Securities & Exchange Commission seems intent on finalizing their own fiduciary rule, which may lead the DOL to amend the rule to have one consistent fiduciary rule out there. In addition, despite the claims of the Chamber of Commerce that the rule will increase the cost of advisory services, I believe that the marketplace is going to increasingly want retirement plan advisors who serve in a fiduciary capacity. After all the cost and time sent on trying to comply with the rule, brokers can’t try to reverse time and tell their clients that they have no interest in serving in a fiduciary capacity. The ship has sailed and I think that even if the DOL or the Courts filet this rule like a butcher would, another, a stronger fiduciary rule is going to come down the road.

So while the fiduciary rule may be a little sleepy, it’s still got some life to it.

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Plan Sponsors Need To Fix Their Plan Errors Now!

My latest article for can be found here.

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Stop thinking of TPAs as just a price placeholder

When you’re a financial advisor and working out proposals for potential plan sponsor clients, pricing is an important thing. This is the case especially when we’re in an environment of fee disclosure, narrowing margins, and a highly competitive environment.

However, financial advisors need to move past the idea that a third party administrator (TPA) is nothing more than a price. They are more than just a placeholder for a fee. The advisor needs to understand that the TPA is something more than a service that has a fee attached. What a TPA selling is different from what other TPAs sell, they aren’t selling the same tube of toothpaste. Every TPA has its own level of service and some have a better service than others. The point is that the level of service is more important than the fee. As I always state, a good TPA is the biggest difference between a plan having major compliance headaches and not.

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One metric about financial advisors that you should consider

When gauging the effectiveness of the retirement plan’s financial advisor, one thing that 401(k) plan sponsors forget to consider is the interaction between the advisor and the plan participants.

While it’s important that the financial advisors cover all the bases when sitting down with the plan sponsor when it comes to reviewing the investment policy statement and reviewing investment options, it’s also important to have an advisor that successfully engages with plan participants.

That means making sure that the advisor regularly schedules enrollment/plan education meetings as well as preparing materials that make it easier for plan participants to make informed investment decisions. That means looking at the scheduling of the meeting, the attendance of meetings, as well as the participation rates in the plan. If you see an increase in plan participation after an advisor is hired, that’s one way to show that they’re doing a job with a positive impact.

It’s not enough that an advisor looks smart and sounds smart at the plan fiduciary meetings, it’s just as important that they’re engaging at plan participant meetings as well.

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