The Rosenbaum Law Firm P.C. Blog

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

As referenced in the episode “The Foundation” from Seinfeld, Dr. McCoy did say at the end of Star Trek II after the death of Spock: “He’s really not dead, as long as remember him.”

I feel the same way about the Department of Labor’s new fiduciary rule that was cut down before it was fully implemented, gutted by the Trump administration and the courts. I believe that the rule still has an effect in the marketplace as plan sponsors understand their fiduciary responsibility a little more thanks to the media attention to the new rule. In addition, there are many broker-dealers who realize that after spending millions to comply with the new rule, they can’t simply turn back the clock and act if the new rule never happened.

I believe that the new rule acted as a wakeup call to plan sponsors and the industry that fiduciary responsibility for the plan sponsor is a lot more important than who gets paid for what investment they pick and that the plan sponsor’s clients needs outweigh any trail. In the end, I also believe just because the latest attempt to replace a 40+-year-old fiduciary rule doesn’t mean the DOL won’t try again because they will.

My latest newsletter can be found here.

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

We’ve been conditioned in life that everything is about results. I know from law school the hard way how much that first job relied so much on what grades I got. Businesses are so concerned with the bottom line and we know how sports teams are fixed on wins and losses.

When it comes to retirement plans, results and the bottom line are kind of meaningless if you think about it. A participant’s rate of return isn’t as important as whether the plan puts a participant in a position to make informed investment decisions if the participants direct their investment in a retirement plan.

The participation rate of the plan isn’t as important as whether the compliance tests are run correctly.

The bottom line here is that Plan sponsors need to understand that when it comes to a retirement plan, it’s all about the process and less about the result. I will tell you that when the Internal Revenue Service and/or Department of Labor audit a plan, they never look at the rate of return for the Plan. What they look at is compliances tests and information that gives them the satisfaction that the plan is run according to the terms of the plan document, the Internal Revenue Code, and/or ERISA. That’s it.

A few weeks back, I published a blog post on some third-party administrators (TPAs) are not really in the administration business but are in the business of selling insurance and assets. So I used some examples from my past and I stated that a plan sponsor should only hire a TPA where the administration is their main business.

Someone on LinkedIn thought that was some sort of attack on producing TPAs and suggested while there are bad producing TPAs, there are also bad attorneys. Maybe the knock about attorneys was trying to knock me, but honestly, there are a lot of bad attorneys out there and that has nothing to do with me because I know how I carry myself.

As for producing TPAs, I used to have a bias against them because I worked for one. I worked for a producing TPA in the days before fee disclosure and I thought there was an inherent conflict of interest that my TPA was pushing certain mutual funds that paid revenue sharing and this wasn’t disclosed to the plan sponsor client. My old TPA would tell the client that by changing platforms they’d save $2,000 in direct fees, but not tell the client that they were pocketing $4,000 in revenue sharing. Thanks to fee disclosure regulations and thanks to the increased bias against revenue sharing funds, my bias against producing TPAs is pretty much gone. I’m the attorney for a Northeast-based multiple employer plan with a producing TPA and things are fine when they’re using index funds. My point against any type of producing TPAs is that as long as the interest lies first with doing great administration, I have no problem. The only issues are when TPAs see plan administration as an ancillary business to what they think their main business is: assets, insurance, and payroll.

Six years ago, the Department of Labor (DOL) pretty much killed off what we called Open Multiple Employer Plans (MEPs) by saying that MEPs, where there was no commonality between adopting employers, wouldn’t be considered a single plan for ERISA (and Form 5500) purposes.

It pretty much killed off Open MEPs because the big selling point is that they wouldn’t require an adopting employer to complete their own Form 5500. Six years later, the DOL issued no guidance that expanded their ideas concerning what would constitute an effective Open MEP since their advisory opinion that was only specific to one Open MEP.

President Trump’s executive order a few months back that directed the DOL to issue MEP regulations gave many in this industry the idea that the DOL would allow Open MEPs, eliminate the one bad apple rule, and allow plan providers to perhaps sponsor a MEP.

Well, the proposed rules that the DOL just published offered pretty much nothing. While it offered more guidance on how associations and professional employer organizations (PEOs) could sponsor MEPs, it did nothing with its restriction on requiring commonality among adopting employers. So the door for Open MEPs remains closed.

What’s next? The DOL could further expand their proposed rule or Congress could bring back Open MEPs through legislation. Otherwise, we’re pretty much where we were at in 2012.

I was in college and a political friend guaranteed that if we formed a political party to take over the student government, we all would win. We lost because we didn’t know the lengths our opponents would take to beat us including having poll workers tell people not to vote for us.

I started my own practice and my largest client at the time was a southern third-party administrator. The owner guaranteed we would be rich when he’d push out his multiple employer plan service. Of course, he wasted enough time so that the Department of Labor could put the kibosh on Open MEPs in May 2012.

There are going to be people in this business who will guarantee you outcomes and promise you wishes, but you’re likely to face disappointment than get the promised success because there are no guarantees in this business and I guarantee that.

Sears isn’t dead yet, but it’s a matter of time. It was amusing when the leadership at Sears suggested that its pension plan obligations was the source of their fiscal issues, not the fact that Eddie Lampert has been running into the ground for the past 10 years.

Sears was the greatest retailer this country ever knew for well over 100 years and it’s been dying for the last 20 years, but it’s impending death has been quicker under a leadership that never put a nickel into refurbishing stores. The funny thing about customers is that they don’t like to shop in stores that haven’t been updated in the last 50 years. Lack of refurbishing stores drove customers away and this Rewards program they initiated did nothing to bring them back. Then they started selling off pieces of the company that were making money like Lands’ End and Craftsman tools. The reason it’s been dying because it’s the same leadership in place that has been running the stores into the ground.

Regardless of your role as a plan provider, plan providers with consistently poor leadership are going to have the same consistent problems and won’t be able to grow. What befalls any organization is a lack of leadership and the unwillingness of trying to change that leadership.

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