The Rosenbaum Law Firm P.C. Blog

So many are celebrating the ruling against the Department of Labor’s (DOL’s) fiduciary rule in the Fifth Circuit without realizing what that really means. A Federal appeals court in New Orleans doesn’t have an impact outside the fifth circuit and we’re still likely to hear a Supreme Court case soon since we’ve had the 10th circuit uphold it.

While the Trump led DOL seems very intent on dismantling the rule one way or the other, help is on the way. The Securities & Exchange Commission seems intent on finalizing their own fiduciary rule, which may lead the DOL to amend the rule to have one consistent fiduciary rule out there. In addition, despite the claims of the Chamber of Commerce that the rule will increase the cost of advisory services, I believe that the marketplace is going to increasingly want retirement plan advisors who serve in a fiduciary capacity. After all the cost and time sent on trying to comply with the rule, brokers can’t try to reverse time and tell their clients that they have no interest in serving in a fiduciary capacity. The ship has sailed and I think that even if the DOL or the Courts filet this rule like a butcher would, another, a stronger fiduciary rule is going to come down the road.

So while the fiduciary rule may be a little sleepy, it’s still got some life to it.

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

When you’re a financial advisor and working out proposals for potential plan sponsor clients, pricing is an important thing. This is the case especially when we’re in an environment of fee disclosure, narrowing margins, and a highly competitive environment.

However, financial advisors need to move past the idea that a third party administrator (TPA) is nothing more than a price. They are more than just a placeholder for a fee. The advisor needs to understand that the TPA is something more than a service that has a fee attached. What a TPA selling is different from what other TPAs sell, they aren’t selling the same tube of toothpaste. Every TPA has its own level of service and some have a better service than others. The point is that the level of service is more important than the fee. As I always state, a good TPA is the biggest difference between a plan having major compliance headaches and not.

When gauging the effectiveness of the retirement plan’s financial advisor, one thing that 401(k) plan sponsors forget to consider is the interaction between the advisor and the plan participants.

While it’s important that the financial advisors cover all the bases when sitting down with the plan sponsor when it comes to reviewing the investment policy statement and reviewing investment options, it’s also important to have an advisor that successfully engages with plan participants.

That means making sure that the advisor regularly schedules enrollment/plan education meetings as well as preparing materials that make it easier for plan participants to make informed investment decisions. That means looking at the scheduling of the meeting, the attendance of meetings, as well as the participation rates in the plan. If you see an increase in plan participation after an advisor is hired, that’s one way to show that they’re doing a job with a positive impact.

It’s not enough that an advisor looks smart and sounds smart at the plan fiduciary meetings, it’s just as important that they’re engaging at plan participant meetings as well.

The Fifth Circuit Court of Appeals vacated the Labor Department’s fiduciary rule, overturning a Dallas district court decision that originally upheld it. By a 2-1 vote, the Circuit Court held that the Department of Labor (DOL) exceeded its statutory authority under ERISA in implementing the rule.

Before you bury the fiduciary rule, to quote Rocky Balboa in Rocky V: “I didn’t hear no bell.” This is only the first loss for the DOL as they won in the Tenth Circuit. Splits in the circuit courts mean that ultimately, this case or similar cases will likely find its way to the Supreme Court.

In this case, the majority ruled in favor of the U.S. Chamber of Commerce and industry trade groups, including the independent broker-dealers’ Financial Services Institute and the Securities Industry and Financial Markets Association. The claim that the judges bought was that the DOL went beyond its statutory authority under the ERISA by the way they imposed the requirement that brokers act in their clients’ “best interests” when handling retirement accounts.

So the story about the new rule still goes on and we’ll likely see a Supreme Court case soon.

Knight’s Companies, a septic tank, trucking and concrete block business in sued Vantage Benefits and their principals Jeff and Wendy Richie in Federal District Court in South Carolina, The suit claims that Vantage and the Richies wrongfully transferred approximately $437,744.43 in retirement benefits from the participants of the Plan to a Vantage Benefits’ bank account.
The suit was filed in February and the date for defendants to file the answer to the charges has passed, so another default judgment is likely.

The suit claims that Vantage falsified Plan participant account statements and participant accessible website information to make it appear that participant account balances were whole and accurate. More than 85 percent of the more than $500,000 plan’s account balance is gone.

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

As discussed in my newest book, “The Greatest 401(k) Book Sequel Ever”, I’m still amazed at my interaction with “renowned” ERISA fiduciary expert turned convicted thief Matt Hutcheson. It’s no a great episode in my career because I didn’t want my name to be in the same sentence with him. Yet I did.

So I’m surprised to hear of plan providers that may be affiliated with other plan providers where the principals have less than sterling reputations. An Aerosmith said it best in the B-Side “Don’t Get Mad, Get Even” (a message I support): “When you sleep with the dogs, you wake up with the fleas.” Your reputation is everything, so I think it’s an absolute mistake to be involved with other providers that will hurt your brand with that affiliation.

As I said in a book, you can build a reputation over a lifetime and lose it all in a minute.

When automatic enrollment was first introduced, it was introduced as a negative election and I thought it was just a cheap gimmick by an employer to help their actual deferral percentage test because all money from the negative election ended up in some money market or stable value fund because there was no relief for plan sponsors in a participant-directed plans. Once it was codified into the law, I became more supportive because it allows assets to be invested in a QDIA fund.

While I’ve grown to love automatic enrollment, so have plan sponsors.  According to a Willis Towers Watson study, 73% of plans now offer automatic enrollment. Even though 47% thinks the enhancement might be too costly.

I’ve been an advocate of automatic enrollment because most employees will be too busy to opt out and they’re saving for retirement involuntarily. A good financial advisor can get these automatic enrollees to maybe increasing their deferral percentage and actively invest. I just think it’s a good thing to get people to save for retirement even if you have to draft them.

It didn’t take long for the first decision in a lawsuit against vantage Benefits and its owners when they defaulted.

A default judgment was handed down by Judge David C. Godbey of the U.S. District Court for the Northern District of Texas in the Caldwell and Partners Inc. v. Vantage Benefits Administrators case. The court held Vantage Benefits Administrators, Inc. and its CEO Jeffrey A. Richie liable for $10,170,452 in damages, plus $297,836 in attorneys’ fees and costs for violating ERISA by allegedly embezzling plan assets.

The suit claimed that plan assets were transferred by Vantage by directing Matrix to transfer plan assets to Vantage’s operating accounts.

Vantage and Richie didn’t contest the case in court as Vantage was shut down by the FBI and he remains under investigation by the Department of Labor.

From experience, I know how it’s almost impossible to collect on a default judgment as I have one against a former client of mine that still remains in business as an Atlanta area third party administration firm. You should assume that Caldwell and Partners will seek redress against Matrix, but that will likely be through mandatory arbitration.