The Rosenbaum Law Firm P.C. Blog

Going to the movies was never fun. The theaters were dirty and if you arrived late, then you’d end up in the front row plus the menu was limited to popcorn, candy, and hot dogs.

A funny thing happened: movie theaters realized that if they improved the overall experience, they can increase ticket sales even if they decide to pull out more seats to make way for reclining chairs. They also realized that if they add more items to their menu, they will sell more food. Some location even added a bar. Ever since my local AMC theater was updated with recliner seats and reserved ticketing, I’ve yet to go back to the other theaters with the old style seats.

Improving the comfort level of theatergoers will increase the likelihood, that they will come back and buy more tickets. It’s the same thing for your plan sponsor clients. Improving the experience where it’s easier for them to work with you is going to help increase the experience and maintain the client. That experience improvement could be technology, it could be something as simple as offering help with completing the census file or adding a free plan review from a well known ERISA attorney (cough, cough). Whatever it is, realize that comfort and ease goes a long way to maintaining that client.

Ever since the Internal Revenue Service opined that one particular 401(k) plan could use matching contributions instead to help employees pay off your student loans. On paper, a great idea since I love options. As with any idea, everyone is trying to copy it.

Providers are now going to try to offer a student loan-match program and my only question is how popular will they actually be? Student loans are choking the finances of anyone who has to pay them off, especially those who just graduated I still have loans that my parents are paying and that was over 20 years since I graduated. In order for employees to get the match to pay off student loans in these programs, they’re going to have to defer and if you have student loans to pay, deferring in a 401(k) plan might not be possible.

So these match student loan programs might be a great idea, there might not be enough of an audience that can afford to use them.

The word on the street is that Principal Financial Group Inc is in talks to acquire Wells Fargo & Co’s retirement plan services business, in a deal that could exceed $1 billion.

With Wells Fargo still trying to overcome some banking scandals, they’re trying to cash out of the 401(k) business. It continues the trend since around 2012 of further consolidation in the 401(k) plan industry.

If the deal goes through, the question is what will happen with further consolidation? Will fees go lower because of lower operating costs or will fees go higher because of less competition? Your guess is as good as mine.

I had a friend of mine who was an advisor who was lamenting about the changing environment of the retirement plan business as certain providers become larger and offering plain vanilla services in terms of administration and/or investment services.

This advisor sees the consolidation in the industry as a bad thing for his business.  I’m the contrarian and when he sees challenges, I see opportunity. I see an industry that might become plain vanilla, I see that being chocolate isn’t bad. I think there is enough plan sponsors out there in the marketplace to be unique and different and stand out amongst the herd.

When challenged by a larger competition, I think it’s important to see what you do and what is unique and lets you stand out. This is how I saw myself when I started my own ERISA practice or even when I decided to start my own conferences. I looked at what the competition was doing and I decided the best chance you stand out was doing something unique and appetizing for clients. If other ERISA attorneys were charging by the hour, I would charge a flat fee. If the other conferences had high sponsorship fees and limited commercial opportunities, I was going to offer something else.

Again, there are enough plans out there that you can be chocolate or even strawberry and be successful in the retirement plan business.

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

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 9 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 three financial advisory firms and one TPA that pay that fee.

The first client I ever signed up for that fee was a southeastern 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 2.5 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. 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 collection, but I still felt like the relationship mattered and that there were fees that were going to eventually come my way.

In late 2015, they referred me a client that needed to restate their 401(k) plan. I did the work in July and finalized all the work in January. I still haven’t paid in full from their client. So my deadbeat client was referring me more deadbeat clients.

A few weeks later, I texted the owner of the TPA that maybe it was best to go our separate ways and that I refer the matter to collections. He promised to call Washington’s Birthday, He always promised to call, he rarely did, Weeks would go by where he would promise to call every other day and months would go by before we ever talked and he never seemed to want to talk about the money he owed me.

I knew he wasn’t going to call President’s Day and he didn’t. I finally referred the matter to collections. Once I referred the matter to collections, I felt 1,000 pounds off weight lifted off my shoulder. Of course, I’m beating myself for not seeking the money a few years back, but I thought I was doing the right thing with a business partner. You can bend over backwards for people and there were always be that one or two people who will take advantage of that. The problem is identifying those people and when to end it.

When I first started out as an ERISA attorney working for a third party administrator in the late 90’s, I remember when advisors tried to get in the very hot, highly ranked funds such as Janus Twenty. I remember the rush to the doors when Janus was closing the fund down to new investors. The late ’90s was a crazy time as every advisor tried to land the highest rating funds for their clients.

Ratings don’t last forever, look at Janus Twenty. Look what happened when Legg Mason’s Value Trust fund did after it stopped its winning streak against the S&P. Ratings and rankings as to which funds are hot and which third-party administrators to hire are just a snapshot of what is going on today and these things change. I ought to know. When I went to law school at American University Washington College of Law, they were on the cusp of cracking the top 50 list of law schools. They told us that the new building would get us there. After I graduated and with that new building opening when I was there, they did crack the top 50 for a couple of years. Now, they’re around the high 80s behind schools I didn’t apply to because I knew I’d get in and a school that didn’t exist when I graduated, UNLV. The point is that while chasing what’s hot is that there are moments when it’s not. All I can say is that if someone told me that in 2002 that a company called Bisys would eventually become one of the powerhouses in the retirement plan business (as Ascensus), I would have laughed at you.

While plan providers tell 401(k) plan sponsors such as yourselves that you need to focus on fee and fiduciary issues, you should never lose sight of the fact that a 401(k) plan is an employee benefit.

Just like health insurance, gym reimbursement, and free coffee, a 401(k) plan is an important employee benefit that can be used to retain and recruit employees. That’s why it’s important that you have one and maintain it so that it runs optimally for the benefit of plan participants.

Why is it important not to forget that a 401(k) plan can be a big thing? By a four-to-one margin (80 percent to 20 percent), workers would choose a job with benefits over an identical job that offered 30% more salary with no benefits, according to the American Institute of CPAs, which released the results of its 2018 Employee Benefit Report. That’s why.

Having employees can get a bit messy. I know that from experience, having left a position or two that may not have been on the best of terms (I bring that out in people).

If you have a 401(k) plan that you sponsor, I suggest trying your best to having those former employees roll out their account balances. Sure, for most distributions (usually over $1,000 or $5,000, depending on the plan’s terms), you will need their consent, but you have to give the nudge to these former employees that it might be a good idea to roll out their account balance.

Why? Participants, even former participants, are entitled to notices and updates as required by law. It’s hard to keep up with former employees that you’ve lost in touch with and those you were happy to lose touch with. In addition, I always say that former employees are more likely to cause plan sponsors trouble than current employees.

Too many plan sponsors send out the initial paperwork to these former employees and never follow up. The problem with that approach is when the plan needs to be terminated, it becomes a headache trying to locate those you lost in contact with. A little housekeeping now will avoid the major housekeeping when the plan is winding down.

The 9^th Circuit upheld the dismissal of a complaint by participants in the Walt Disney Co. 401(k) plan that Disney violated their fiduciary duty by offering the Sequoia Fund, a mutual fund that had plummeted in value.

A three-judge panel of the 9th U.S. Circuit Court of Appeals upheld a 2016 decision by the U.S. District Court in Los Angeles that dismissed the complaint against the plan’s investment committee and various plan fiduciaries.

“As a general matter, allegations based solely on publicly available information that a stock is excessively risky in light of its price do not state a claim for breach of the ERISA duty of prudence,” the appeals court wrote in its opinion.

The plaintiffs argued that the Disney plan fiduciaries had failed to “prudently monitor and review” the offering of Sequoia Fund as an investment option.

The problem I see now is that Federal courts are getting tired of these cases and plaintiffs need to show that the use of a particular fund actually breached the plan sponsor’s fiduciary duty, rather than just the investment option plummeted in price. As long as the plan sponsor can show that the use of an investment option is consistent with their investment policy statement and their long term goals, I don’t think Courts will want to second guess what fiduciaries should be doing. Everything when it comes to fiduciary duty is about a rational process and following it. ERISA litigators are going to have to show a little more work to show that investment decisions actually breached a fiduciary’s duty.