The Rosenbaum Law Firm P.C. Blog

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

I started this law firm about 17 years ago as a side project. It is where I could offer legal services on the side while I did my normal day job. It was an experiment on whether I could go out on my own and I learned during that time what worked and didn’t.  I can tell you that advertising in the local Pennysaver or advertising yourself as low-cost legal providers are likely misses.

So part of my practice was offering most services such as tax preparation and wills on a flat fee. For a time, wills were ridiculously low such as a will for $100. I had a tax client who wanted me to do a will and she knew about those fill in the blank forms that Staples offered.  I had software that produced wills in a Microsoft Word format. The clients asked me whether I would do their wills using those fill in the blank forms and whether I would cut my fee. I told them I wouldn’t because that was outside my comfort zone and my will fee was ridiculously low as it was.

A good part of my practice is working with financial advisors and TPAs. Some have me on a monthly retainer; most just call out of the blue with questions (feel free to call). Many advisors ask for my opinion on clients who request something outside the box, such as asking an ERISA §3(38) fiduciary who uses index funds to retain some of the actively managed funds that the previous advisor added to the fund lineup or a financial advisor being asked to assist a plan sponsor with an Internal Revenue Service (IRS). Being a retirement plan provider is hard enough without adding stuff to your plate that may put yourself out of your level of comfort. If you are a §3(38) fiduciary, the whole point was for the plan sponsor to offer discretionary control over plan investments and you don’t have control when the plan sponsors are asking you to retain their previously added investment options. Being a financial advisor doesn’t mean being an ERISA attorney in handling plan audits.

The road to hell is paved with good intentions and I am sure that there have been plan providers being sued for errors caused in favors these providers did for specific plan sponsor clients that the provider knew was out of their level of comfort.

It’s easier to say yes to every plan sponsor request, but it takes a better businessperson to turn down business that may increase your liability and get you out of that zone of comfort.

For 18 years, I have been working on retirement plan audits. Either the plan was under examination by the Internal Revenue Service (IRS) and the Department of Labor. I can count on one hand how many plans had real issues and thankfully all of them were resolved with a plan being disqualified.A few weeks back, I had the best audit that I ever went through with a client. What was great is that there were no missing items that the IRS agent needed to see and he proclaimed he was going to issue a

A few weeks back, I had the best audit that I ever went through with a client. What was great is that there were no missing items that the IRS agent needed to see and he proclaimed he was going to issue a no action letter. What made the audit a great experience was the fact that there was a plan sponsor who took their role as a plan fiduciary seriously and a registered investment advisory firm who know a lot about retirement plans was handling them. The plan sponsor and the advisor were able to get all the information that the agent needed, so there were no outstanding questions left. I’ve had so many audits where I had to get information from a former third-party administrator or the plan sponsor had to get an old plan document out of storage.

As a plan sponsor, if you are ever contacted for an audit, call an ERISA attorney. Then talk to your plan providers and try to get everything that the government auditor is asking for. That is what makes the plan audit as painless as possible.

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

If you’re a financial advisor, more assets under management equal more money.  It’s pretty simple to me. So that means a financial advisor working in the 401(k) plan space should do their best to making sure that their Plans get bigger n the asset department.

That’s why being concerned how much the fees that plan sponsors are paying for administration and investments are a concern. More money lost in high fees means less in the Plan.

Financial advisors should look to other avenues to grow the assets of the Plan.

If rank and file employees are close to age 70 ½, perhaps approaching them to roll over their IRAs to the 401(k) plan to avoid getting caught up with required minimum distributions is a consideration.

Getting highly compensated employees to transfer ADP refunds into a Roth IRA within the 401(k) plan is an idea, so are the sidecar IRAs that plans could offer for participants who may want IRA and 401(k) assets under the same roof.

Automatic enrollment is another option. Safe harbor plan design and cross-tested allocations can work as well to get more assets.

An advisor who helps the plan sponsor grow assets can help them lower fees and end up getting more shekels for the advisor. That’s a good deal.

When it comes to plan sponsors in choosing providers for their retirement plan, I think one rule of thumb is to choose plan providers that are ahead of the curve. What do I mean by ahead of the curve? Retirement plan providers that are consistently innovators in the industry that started to change before the change was required.

What is a TPA that is ahead of the curve? A TPA who practices full fee disclosure before it was ever required.

What is a financial advisor that is ahead of the curve? A financial advisor who understand their role in assisting in the fiduciary process for the plan sponsor by developing an investment policy statement, constant review of plan investments, and offering investment education to plan participants. It’s also an advisor who is sensitive to the cost of plan administration and plan investments.

What is an ERISA attorney that is ahead of the curve? An ERISA attorney who is interested more in lowering the administrative costs and potential liability of a plan sponsor instead of how many hours they billed them.

Whether it’s exchange-traded funds in 401(k) plans or ERISA §3(16) administrators that will be the next big thing, always check the providers that are willing to try new things than those who stand pat and refused to change with the times. You either change with the times or the times will change you.

December 1 is pretty quickly going to be upon us, which reminds me that I have some notices to send out shortly. For those in the retirement plan business, we know December 1 marks the date that safe harbor notices have to be distributed to participants for a plan to be eligible as a safe harbor 401(k) plan for the 2018 calendar plan year. Since December 1 is before December 31, 2017 plan sponsors have to have a premonition that they might fail their 2017 discrimination tests in order to be a safe harbor plan.

Safe harbor plan design is one of the best developments in qualified plans in the last 15 years. It’s a win-win because the 100% vested contributions to plan participants allows the plan to get a free pass on ADP (deferral discrimination tests), ACP (matching contribution tests, if contribution made), and the Top Heavy test (making sure plan doesn’t substantially benefit Key Employees). In addition, if the plan sponsor elects the 3% non-elective safe harbor (3% of compensation contribution to participants, regardless of whether they defer or not), that 3% can also be used to satisfy the minimum gateway contribution to non-highly compensated employees in a cross-tested allocation (which means that highly compensated employees can get up to 9% of compensation in this type of profit sharing contribution).

That being said, a plan sponsor has to be advised by their third party administration firm (TPA) and/or ERISA attorney why a safe harbor plan design might be a good idea. Here are some clues as to when plans need to go this route:

1. Plan has failed the ADP, or ACP, or Top Heavy Test (or all of them) in the past 1-2 years.
2. Plan has come close to failing the above tests in the plan year.
3. Demographically, plan has non-highly compensated employees that defer at a very low percentage.
4. Demographically, plan has a large group of highly compensated employees such as a professional practice (law firm, accounting, and medical practice).
5. Plan already uses a cross-tested, new comparability allocation for their profit sharing contribution.

If you need to know whether a safe harbor design is a good idea for your plan, contact your TPA or yours truly.

When I started my own National ERISA/ retirement plan law practice more than 7 years ago, it wasn’t easy. It still isn’t easy, but I could no longer see myself working for people who were either too arrogant or too blind to see what the retirement plan industry was turning into.

One of the things I’ve learned over the past 19 years I’ve spent in the retirement plan business is that no matter what happens to you in business, you can’t change who you are. You have your way of doing business, both professionally and ethically, and as long as they are on the up and up, never change that.

One of the things about my practice is that I want to be paid for legal services only, so I’m not going to receive a fee for pushing clients to seek certain providers or advisors I recommend. So when advisors have come to me with these “finder’s fees”, I tell them: ‘thanks, but no thanks.” My legal fees compensate me for my independent legal advice; any other fee is a conflict of interest to helping my clients first.

There may be competing advisors who are unethical (I know of far more successful ERISA attorney who received paid solicitor fees for referring clients to specific providers) or clients who either don’t pay bills (hello John) or drive you crazy, but you should never change who you are.

Never change who you are, no matter the few who treat you badly or act badly in this industry.

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

You must know about the shoemakers’ children and how they go barefoot and have no shoes. In the retirement plan industry, we have retirement plan providers and their employees’ retirement plan.

I know, I have been there. The third-party administrator I once worked for didn’t have a great plan, it was often alleged we switched platforms to salvage our premier pricing with a certain insurance company. Don’t know if it was true, but that’s what was alleged.

So for me, it’s no surprise that mutual fund companies are being sued by former employees over their own 401(k) plan. While I don’t know all the facts and it will be decided in the courts, one fact (if true) fascinates me.

I often waste time analyzing irrational behavior through rational eyes and I always ponder: “what were they thinking?” So when I hear that part of the complaint is that all of the mutual funds in a mutual fund company’s plan were funds from that fund family, I ask: “what were they thinking?”

When you have thousands of mutual funds out there and hundreds of mutual fund companies, it’s just amazing that any plan sponsor (whether it’s a mutual fund company or not) thinks it’s prudent that every fund on the plan’s lineup is from the same mutual fund company. It doesn’t look right and it doesn’t look prudent, especially when there is no mutual fund company that has superior success in every sector of the market. In addition, any plan that only has funds from the same mutual fund company is often being administered by bundled providers who are mutual fund companies (i.e, plan being administered by T. Rowe Price with only T. Rowe Price funds). How is a plan sponsor able to offer a rational explanation that it was prudent to select mutual funds from one company? I don’t think they can, especially when the mutual fund company is one of the plan providers.

Often in the retirement plan business, if it doesn’t look right, there is usually something wrong. Any plan using the mutual funds from only one mutual fund company is a plan with something wrong.