The Rosenbaum Law Firm P.C. Blog

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

“When I introduce you, I’m gonna say, “This is a friend of mine.” That means you’re a connected guy. Now if I said instead, this is a friend of ours that would mean you a made guy. A Capiche?” – Al Pacino in Donnie Brasco.

As a retirement plan provider, you are often asked to give a referral to other retirement plan providers. If you’re a financial advisor, you might be asked for a referral to a third party administrator or an ERISA attorney.

The problem with referrals is when they come back to bite you. A request for a referral by a client is something based on trust, they trust that you know who is good and who is not. When you give a referral to a good provider, you look that much better in the eyes of your client. If you give a bad referral, you look terrible and I have run into providers who have lost business just because of a bad referral.

So it’s important that any referral is based on first-hand knowledge of a provider’s competence. Referring to a provider because they may refer you back in business is a bad idea and using a referral, as some sort of tryout to network with other providers isn’t either. Your word is your bond and a bad referral is almost the same as breaking your word because it’s a break in trust. Trust is one of the most important things that a client should have in their provider. So be careful with referrals.

Callan has published its 2018 DC Survey, offering up an overview of the U.S. defined contribution (DC) plan industry. The survey has shown that unbundled plans have gained traction in the marketplace.

The survey showed that the proportion of plans that are at least partially bundled fell from 53.8% of plans n 2016 to 44.0% in 2017. There has been a consistent trend towards unbundling and the survey confirms that. The most amazing statistic is that just 8.8% of plans with assets greater than $1 billion utilize a fully bundled structure. I think that 8.8% is reflective of the litigation against large plans and the bundled providers they’ve used.

According to to the survey’s definitions, in fully bundled plans the recordkeeper and trustee are the same entity, and all of the investment funds are managed by the recordkeeper. Partially bundled plans also have the recordkeeper and trustee as the same entity, but not all of the investment funds are managed by the recordkeeper.

This survey confirms the trends in the retirement plan business towards a fully unbundled marketplace.

I’ve been a New York Giants football since the days of Ray Perkins, Brad Van Pelt, and Joe Danelo. 4 Super Bowl victories have been far more rewarding than my time as a Mets fan.

Thinking about football reminded me of a client my employer, a third party administrator was trying to smooth out a relationship with the new benefits manager of a law firm with $25-30 million of assets in their 401(k) plan. Without any prodding by our firm, this benefits manager said he was a Jets fan and he circled out from a schedule of games of the ones he would like to attend. That was the benefit manager’s message that he wanted my TPA to buy him Jets tickets and the TPA got the message by buying these tickets. Needless to say, that law firm was still a client for many years after.

Like Don Fanucci in Godfather Part II, there will always be plan sponsor representatives that would like their beak wet. This type of bribery is something that will always be available in the retirement plan marketplace, but it’s up to the plan sponsor and its providers to make sure that any gifts are de minimis to avoid any prohibited transactions and under the board conduct that could put the plan sponsor in danger.

As a plan sponsor, you need to make sure that there are checks and balances. Having one person making all the decisions is likelier to be prone to bribery and kickbacks than a situation where a committee makes the decisions. Any guidelines that restrict what gifts can be made and requirements of plan providers to report these transactions (just like labor unions and their providers must do annually) will go a long way to make sure that the selection and retention of plan providers is above board.

In light of some troubling news that a third party administrator (TPA) was shut down by the Federal Bureau of Investigation (FBI) for possible theft of plan assets, there is one pro-active step you should take as a plan sponsor and it’s really simple.

When it comes to plan theft, you can’t guard your plan’s assets like putting an alarm on your car or putting a guard to stand outside a bank. What you can do is to actually review your plan’s trust statements and identify any unusually large plan withdrawals that can’t be attributed to participant payouts. As long as the plan assets are held by a reputable custodian like Fidelity, Schwab, Empower, Mass Mutual, Vanguard, and any other well-known investment institution, you can make sure that the statements will be accurate when it comes to mass withdrawals. My client who had their assets where Bernie Madoff was the custodian was out of luck.

You can’t eliminate the threat of theft, but you can make moves to minimize the risk. So review those trust statements when received and make sure the ERISA bond is up to date as well as your fiduciary liability insurance. If you see any suspicious activity in your trust statements, say something.

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

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

Plan sponsors will say it all the time: they are too small to be sued in a class action lawsuit. That may be true, but a class action lawsuit isn’t the only thing to fear.

Most plans aren’t big enough to have a class action lawsuit against them, but they have other fears that plan sponsors aren’t even aware of. While a $1 million plan isn’t going to be sued by an ERISA attorney in a class action lawsuit unless they’re starving, retirement plans can be targeted by an employee or two to get a quick, inexpensive settlement or the government can audit them. The fact is that small plans have been sued from time to time, so a small lawsuit can happen.

In addition or instead of a lawsuit, a plan can be targeted by the Department of Labor (DOL) for an audit. Speaking from experience, an audit can be painful and as costly as any lawsuit. There are more audits of smaller plans than lawsuits and they can be costlier.

The days where plan sponsors can look the other way about their retirement plan is long over. They either need to shape up or get shipped out to participants and/or the DOL.

An analysis by the Employee Benefit Research Institute (EBRI) shows that 2017 was a banner for 401(k) plan account balance. The analysis found that the average account balance for younger (25-34), less tenured (1-4 years) workers gained 43% in 2017

For older workers, the average 401(k) account balance of those aged 55-64 with more than 20 years of tenure ended the year nearly 20% (19.5%) higher than they began the year. Having been in the business long enough to remember two huge stock market downturns, this is some good news.

While some always lament 401(k) plans when the markets tank, it’s nice to appreciate when workers can make some nice gains.