The Rosenbaum Law Firm P.C. Blog

Henry T. Ford is considered the father or the pioneer of the modern day assembly line of manufacturing.  His development of the Model T and its way of manufacturing is considered one of the great developments in 20th-century capitalism. His assembly line combined the idea of interchangeable parts and was a model of efficiency. His efficiency did have its limitations. In his autobiography, Ford wrote: “Any customer can have a car painted any color that he wants so long as it is black”.

There are many retirement plan providers that have an assembly line approach when it comes to retirement plans. These providers use their own standardized prototype documents and have a consistent plan design structure. Like the color of a Model T, plan sponsors usually using these providers have no choice in plan design and these limitations may cost the plan sponsor money because they are not able to maximize employer contributions through plan designs that may increase contributions to highly compensated employees, which many times are the owners of the plan sponsor.

There can’t be a cookie-cutter approach to retirement plans. Every plan is different. Even plans sponsored by the same employer are different. Every plan has its own set of circumstances as to why they were set up, what the goals were when set up, as well as the demographics of the plan sponsor supporting it. Their vesting schedule, eligibility requirements, and employer contribution should be drafted to the specific needs and demographics of the plan sponsor. Plan documents are legal documents and legal documents have legal consequences. They should not be churned out by someone who is not an ERISA attorney or is not a paralegal with extensive retirement plan drafting background.  Prototype plan documents that have that fill in the blank document look can be a very cost-efficient, but they have their limits and there are very often situations where the plan sponsor’s needs cannot fit within the confines of the plan document’s limited choices.

Retirement plans are not widgets or tubes of toothpaste. Like a suit, they have to be custom made or tailored to meet the specific needs of the plan sponsor. Failure to have the plan fits the needs of a plan sponsor is the same as my 12-year-old son wearing his Size 6 clothes or my clothes.  Plan design and drafting is an essential part of retirement plan administration and should not be discounted.

These plan providers that use that assembly line approach that doesn’t offer new comparability plan design or a variety of choice among plan provisions does a disservice to the plan sponsor. Cost for a plan sponsor in retirement plan administration is a concern, but not the overriding concern. Plan sponsors need providers that can draft and administer the plan so it fits their needs.

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

I live in an unincorporated village on the south shore of Nassau County and the elected Board of Education has this problem that doesn’t want to talk about and it’s called nepotism. Three out of the seven members have a child working for the district, all who got jobs while their parents were on the Board including one member where both sons just were hired for the district. They will say there is nothing wrong with nepotism. They’re right in the sense that it’s not illegal as long as the parent board member abstains, but it gives the impression that something underhanded is being done. Impressions matter because it leads to negative inferences and assumptions.

A few weeks back, a plan sponsor client asked me about a bundled third-party administrator. I thought hiring them would be a mistake, but the sponsor was still interested. I talked to the provider and they were trying to allay my fears before they did break the one cardinal rule: they offered me free tickets to a sporting event as their guest.

My wife will say I don’t charge enough for my service and she’s probably right. But one thing I can’t do is give anyone the impression that my opinions can be bought. While I have accepted sports tickets from providers where a client of mine wasn’t a client of theirs, I try to avoid situations that give the impression that I can be swayed by something that looks underhanded. While being schmoozed is a part of the business, it’s usual general schmooze that isn’t tied to a specific client of yours that might give the impression that you have a conflict of interest.

An advisor asked me a very interesting question that had me thinking: since a good chunk of what an advisor does is helping a plan sponsor minimize their fiduciary duty, is it a proper plan expense to use assets to pay for something that protects the plan sponsor?

I thought it was a great question and I told the advisor that while it’s still a proper expense to compensate an advisor as a proper plan expense, the use of plan assets to pay an advisor for services in connection with something that would benefit a plan sponsor might be an improper expense in the future.

I will always contend that revenue sharing in 401(k) plans s only legal because the Department of Labor (DOL) and Congress hasn’t said it’s illegal when we know that record company payola is illegal. It’s possible that the DOL could one say that an advisor can only be paid from plan assets from services that are in connection to working with participants.

From where I sit, I don’t think there will be change because I think it would be too confusing to try to figure out the percentage of services that benefits participants or the plan sponsor. The DOL would probably not try to delineate the services just like the Internal Revenue Service has punted the ball on taxing accrued frequent flyer miles that business travelers get from travel that they didn’t pay for.

I don’t think I have the answer to the question, but I loved it because it’s a great topic to try to figure out.

The Department of Labor (DOL) said it’s not going to pursue enforcement actions against investment advice fiduciaries “who are working diligently and in good faith to comply” with requirements of the fiduciary rule that was recently overturned by a federal appeals court decision. This is after the DOL rolled over and played dead by not appealing the Fifth Circuit decision that struck down the fiduciary rule.

In my opinion, this is a black eye for the DOL who for years talked about implementing a new fiduciary rule. The President Obama led DOL took their time to develop their rule, but they made one huge error.  They let the effective date for most of the rule to take effect after the Obama administration left, which allowed the Trump administration (who didn’t like the rule) to find a way to kill it, which they did.

While there are brokers who are so happy with the end of the rule, there is no time for celebration. How many millions were spent in legal fees to comply with the new rule? How many plan sponsors and SEP-IRA sponsors who received notices that their broker was no longer going to work on the plan? What about the next administration and a possible new rule that will either work with the SEC or will be more restrictive than the one that was just effectively killed?

In the end, in 20+ years in this business, this DOL handling of the fiduciary rule is one of the costliest messes this industry has ever received.

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

My newsletter for retirement plan providers can be found here.

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

When I first started in the 401(k) business, investment selection by participants was still being predominantly done by paper and phone. The first websites I encountered dealing with 401(k) plans gave the participant their account balance and that was pretty much it. Looking at what some of these large bundled providers and independent third-party administrators have done with their websites is absolutely amazing. The only problem is that despite the technology, there will always be a group of plan participants that still want to do things with a pen and paper.

No matter the technological gains made in the business that makes running 401(k) plans easier, there will always be a population of participants that will never access it because of their age or their issues with using the web. Whatever the reason, plan providers need to still get their message out to participants that will never access the website. Keep in mind that notices still need to be readily available, as well as statements. It would be great if we can go paperless, but there is enough of a population that still needs paper.

That 401(k) Conference is that 401(k) financial advisor conference that came out from my idea about what I like and don’t like from conferences that I have spoken at and attended.

I’ve been to so many events big and small and what I like about is the information that they provide 401(k) financial advisors to help them improve their practice. I think any opportunity for advisors to network with other plan providers is always good.

What I don’t like is that cost is such a factor. While it’s costly to run a convention or a conference, charging thousands to attendees and a lot more to those who wish to present as a speaker or run an exhibit can be a costly headache because no advisor or plan provider can afford to attend every conference out there. I’m also not crazy about conferences where it always seems to me that it’s the same 5 people speaking and some represent some of the providers out there that cause issues for plan sponsors out there.

So when I came up with an idea of a conference, I wanted to offer a memorable experience to those who attend and those who sponsor. That’s why the events will be at a major league or NFL stadium with a stadium tour and a meet and greet with former sports great.

For $100 at CitiField (Thursday, June 7th), an advisor gets breakfast, lunch, a stadium tour, and a meet and greet with Doc Gooden. For the plan provider, they can sponsor the event for as little as $500 and as little as $1500.

We still have spots for advisors in New York and we’re signing up sponsors for the Chicago Wrigley Field event on Thursday, September 13th.

Sign up for New York at http://that401ksite.com/that-401k-conference/