The Rosenbaum Law Firm P.C. Blog

In 1993, I wanted a Hewlett Packard LaserJet printer. They were all black and white printers in those days and the cheapest you could find at the time was around $900-$100. At the time I was buying a PC Clone 486DX-33 (that was fast in those days), I got a brand new HP LaserJet 4L, which was this new budget laser printer and I think it might have been $649 or $849, I forget. 26 years later, I am now on my 5th HP Printer. This one is color, laser, with a scan, and copier. It was on sale through Amazon for about $440. Sure they don’t build HP like they used to, but thanks to technological breakthroughs, I get a better printer at a fraction of what I paid in 1993 dollars.

When it comes to 401(k) plans, we are working harder and making less. At least we think we’re working harder because technology has been a great leader in letting us do more in less time. Drafting plan documents these days are just a fraction of what it took in 1999 for me and I still, charge the same plan document fee. So while my fees haven’t increased, the length of time in creating one has decreased. So I might make less, but I have time to do more.

Sure competition and fee transparency has made fees compress, but just remember that most of the compression has to do with technological advances that let us do more work.

As a plan provider, it makes sense to create an ancillary line of business if it’s a natural carryover of the existing line of business.

The big problem with an ancillary line of business is when that new line is considered as competition to a plan provider that you work with. A third-party administrator (TPA) offering financial wellness program may see itself having a problem with the financial advisor who sees that as competition. As an ERISA attorney, I also feel the need to be careful in developing programs and features so those plan providers I work with, don’t see me as competition.

As I always say, it’s bad form to go across the street and go into business against people you work with.

Most 401(k) plans have an investment policy statement to serve as a blueprint on how and why investment options are selected and replaced in the plan.

Some plans have participant education policy statements. Some also have deferral deposit statements in place.

None of these policies are legally required, even the investment policy statement. These statements serve as a blueprint of the processes in place, but the problem with policies is if you don’t follow them. Policies are a written declaration of a process and if you don’t follow them, it’s a breach of that process. So unless you’re going to follow these policies to a T, I think less is more an investment policy statement is all you need as long as you follow it.

The last two times I was in Las Vegas, I didn’t gamble a penny. I didn’t gamble because I hate to lose.

Yet I see so many plan sponsors and plan providers gamble by not correcting a glaring compliance issue and play that the plan won’t be audited by the Internal Revenue Service or the Department of Labor (DOL). I don’t like to gamble my money, the house’s money, or my client’s money. I’d also be committing malpractice by not telling the plan sponsor to fic their issue.

Why do I hate to gamble on an audit? I have enough plan sponsor audits with the government that It’s not something I enjoy representing my clients during, especially when major problems are detected. More importantly, I look at the numbers. In 2018, the DOL closed 1,329 civil investigations with 860 of those cases (64.7%) resulting in monetary results for plans or other corrective action. At a recovery of almost $2 billion through various methods, going through a government audit is not something I’d recommend. Sure, there are legal fees and compliance fees, but it sure beats a government audit where the penalties are more severe.

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For many years, my wife didn’t want to join Costco because she thought that overshopping was genetic on my side when she remembers my parent’s Costco. My wife was concerned I would buy stuff we didn’t need. Long story short, we re-joined and I don’t buy stuff we don’t need.

As a plan sponsor, there are retirement plan providers who will sell you stuff that you don’t need. There are a lot of great services out there that might not be even a good fit because you’re already doing that. For example, if you have a great handle on your plan, you may not need an ERISA 3(16) or ERISA 3(38) fiduciary. These are great services, but they do cost money and are a waste if they’re not needed.

For every service or bell and whistle that a retirement plan provider is trying to sell you, it’s important to understand what they’re proposed to give you, what the costs are, and most importantly, is it really necessary? Often times, you’ll find out that it isn’t. Don’t buy for your plan what you don’t need.

The warranty in the electronics business is gravy for the retailers who sell it. You’ll be surprised how many people pay $20 to get a warranty on a $100 Blu-Ray player. When Best Buy was going national, they advertised how they wouldn’t sell warranties and then realized that they couldn’t turn down all that free money.

A warranty is like insurance, so you should only insure those things that have a high-cost replacement. You insure your health, your life, your house, your car,  and some appliances worth insuring.

This isn’t another diatribe about the fiduciary warranty that insurance companies gave away for free even though their main business is insuring risk for a fee.

This about plan sponsors who don’t insure their risk by buying fiduciary liability insurance or buying a plan service that could review their plan expenses and/or their plan document/administration.

Fiduciary liability insurance helps protect plan sponsors who find themselves also appearing as defendants in a plan lawsuit filed by an aggrieved plan participant in a town near you.  I had clients sued in a class action lawsuit where the insurance company paid $900,000 for a $1 million legal fee (there was a $100,000 deductible) and this plan sponsor won their case.

So many plan sponsors don’t want to pay for a plan review that can help them identify plan issues they wouldn’t ordinarily find unless they were converting to a new provider. I have a plan review called the Retirement Plan Tune-Up for $750 and I can probably count on one hand how many I do a year. When I talk to plan sponsors and advisors, they seem interested but they treat a plan review like a trip to the dentist: something that they will avoid until it’s too late.

Spending some shekels on a fiduciary liability policy and a plan review is certainly well worth it to avoid greater harm later.

I don’t believe in coincidence and when something happens twice, it’s a cause for concern. Within the past couple of months, I’ve had to deal with third party administrators (TPAs) paying ERISA §3(38) fiduciaries in excess of their contracted fee.

Advisors who are fiduciaries need to understand that getting paid in excess of their fee isn’t found money, it’s money that needs to be turned over back to the plan. It’s no time for a shopping spree because as a plan fiduciary, it’s a prohibited transaction to take a fee in excess of the contracted amount and as a fiduciary, you can’t use plan assets to to your benefit. Sure, the TPA messed up, but it’s your job to turn the money over as soon as possible.

As a fiduciary for a plan, I was paid double my fee one quarter and I held that excess in escrow until the TPA discovered the error. You need to watch those quarterly payments to see anything that’s different from the norm.

I am proud to say that I learn something new every day, whether it’s retirement plan related or something related to pop culture. Sometimes, I’m wrong about things. I’m 47 years old now and I tell you: I don’t know everything.

Funny? No, I’m being serious because there are a lot of people in this business who seem to know everything or tell you, that they do. Don’t be like these people, people like that don’t do very well over the long run? Why? Arrogance is one of the deadliest traits in the retirement plan business because arrogance really means that you’re not open to any change. There are s many providers who didn’t want to adjust to a transparent fee environment and paid a high price by having to leave the business whether it was a purchase or it was an involuntary shutting down the doors.

This business known as the retirement plan industry is always in flux, thanks to the regulations, thanks to a change of the law, thanks to the changes in the market, and thanks to technology. You don’t know everything because I can tell you that over my 20 years as an ERISA attorney, everything has changed.