The Rosenbaum Law Firm P.C. Blog

My latest newsletter for retirement plan professionals can be found here.

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

My latest newsletter can be found here.

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

There are so many articles for plan sponsors (I’ve written quite a few) where they go on and on about what plan sponsors need for a successful 401(k) plan. Rather than go into a whole diatribe, here is a Reader’s Digest of what good 401(k) plans have:

1. The leadership of the 401(k) plan understands their duty as plan sponsor and plan fiduciary.
2. A third party administrator (TPA) who does a competent job in plan administration.
3. A financial advisor who understands the retirement plan business and understands that their real role is minimizing the plan sponsor’s liability.
4. A plan design that fits their needs, goals, and pocketbook.
5. An investment lineup that isn’t too large that it increases participant confusion which depresses the rate of salary deferrals.
6. Communication and technology that will get plan participants more engaged which would lead to higher participation.
7. A review of costs and plan providers to make sure what works still actually does work.
8. An ERISA attorney on call when they need them.
9. An auditor (when the plan needs an audit) that gets the job done competently and ahead of any Form 5500.

Many years ago, I started the idea of creating a law firm that intended to be the Wal-Mart of legal service where I would do wills for $100 and tax returns for $150. The business miserably failed because the fact is that most people wouldn’t pick a lawyer just on price.

Yet, many 401(k) plan sponsors pick the third party administrator (TPA) that is the cheapest and that is the only reason why. Selecting plan providers has to be a prudent process and picking a TPA just because they’re the cheapest is like picking a financial advisor just because they’re your cousin. A process for selecting plan providers has to be prudent, rational, and fair. There are so many factors to consider when hiring a TPA such as technology, competence, plan design expertise, cost, and service that just picking a TPA based on cost is irrational. There are a lot of good TPAs that don’t charge much, but they offer a competent level of service. Yet, there are those that are no frills when it comes to cost and service.

There is nothing wrong with picking a TPA that is cheap, it’s just like with high-cost providers, the costs have to be reasonable for the services provided. There has to be something else out there for hiring a TPA other than they’re cheap. Otherwise, you may have violated your fiduciary duty when things go south with this TPA, especially when that level of service causes a lot of administrative headaches.

I recently met an executive through LinkedIn and we an absolute gentleman and really could teach me a thing or two about social media. I later found out that this executive was terminated by a company that I’ve been a customer for many years (it’s not in the retirement plan industry).

Someone advised me that the executive was terminated during his vacation, his office belongings were packed away and he only was aware of his termination when he got back. Davey Johnson, former Mets manager was asked by a talk show caller once: “whether you’re hired to be fired?” Maybe you are, but how you treat your employees can say a lot about you. Maybe waiting for this executive to come back from vacation and let him pack up his belongings is the way to go.

You need to treat employees as the human beings they are. They have feelings, they have needs, and you need to manage that effectively. Otherwise, you’ll have a revolving door and that’s not good for business.

If word gets out how badly you treat employees, word gets out. I remember word got out about how a retirement plan provider terminated a salesperson when they were ill. There are countless stories out there like it and if you terminate a top employee for being sick, what does it say about the other plan providers you do business with? They’re seeing how you treat your employees and wonder how you’ll treat them.

I always have a mantra: “don’t be the a**hole.” If it makes you look bad, avoid it.

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

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

This is Spinal Tap has the great line that “there is a fine line between being clever and stupid.” The same can be said with plan provisions that are what I call: “out of the box.” I call it out of the box because it reminds me of the boxes on a prototype plan document and so many times, there are plan provisions that a plan sponsor wants that doesn’t fit it.

While a good third party administrator (TPA) can effectively administer these type of provisions, mistakes can happen even with the best of them. For not so good TPAs, it happens more often than not. My suggestion is that if you can, avoid these out of box provisions as much as you can. Sure, there are times when you need those provisions, but I always suggest that you keep them to a minimum. I know plan sponsors may not want to make employer contributions on certain parts of W2 compensation, but I have had a handful of compensation problems for plans that need to be submitted to the Internal Revenue Service Voluntary Compliance Program at the plan sponsor’s expense.

The best to avoid trouble is to avoid it and I think a great way is to minimize the use of out of the box provisions that most 401(k) plans don’t have.