The Rosenbaum Law Firm P.C. Blog

I’ve gone back into collecting sports cards because I need hobbies these days since I’m no longer involved in my synagogue and one of the interesting things I’ve discovered are something called card breaks. A sports card dealer buys a case of cards and sports card collectors may pick a certain team or player through an auction or outright purchase. For collectors and even investor, this is a cost effective way of purchasing cards. To promote trust that everything is on the up and up, these card breaks are broadcast live on YouTube or another website. I’ve used one card dealer because it seems everything is upfront, their costs are low, and they are just nice to work with. Above all, there is trust.

Another dealer/card breaker made the run on all these sports card scammer pages because based on a video of a football card break of his, he clearly substituted a card out.  That means he found a very rare print of a card and decided it was too good for one of the customers who was entitled to it. He eventually admitted his error (despite not being honest on what the card might have been) and decided to leave the card breaking business. Did he really have choice to leave? He didn’t because it’s over for him anyway because no levelheaded card collector would ever trust someone like him again.

As a retirement plan provider, what you do for your plan sponsor client is predicated on trust because you have access to the clients and you may have access to the retirement plan’s assets. Anything you do that questions trust that a plan sponsor may have in you is something that will be catastrophic to your business. I’ve seen many a plan provider falter because they lost the trust and faith of their clients. They lost so much business that they had to close their doors. Reputation takes years to build and you can destroy it all in just one moment.

My newest newsletter for retirement plan professionals can be found here.

When it comes to consumer products and food products, we have stringent labeling requirements. Products must have the contents to support that they are Made in the USA, organic, and juice in order to put that claim on their products and there are penalties by the Food and Drug Administration and the Federal Trade Commission if those claims can’t be backed up. It’s kind of sad that there are still no stringent labeling requirements for target date funds, so the nest eggs of countless participants are still at risk for the next bear market.

As with many promises out there, target date funds didn’t deliver in the last bear market. They were supposed to be this one-stop shop mutual fund that would shift its asset allocation to more fixed income as the years get closer to the target date. We can argue about what the target date really should be (retirement or death) or whether asset allocation should automatically shift on some arbitrary date or based on what is actually happening in the market.

My biggest problem with target date funds is that they had no labeling requirements so participants were led to believe that a 2015 or 2020 had little or no equity exposure in 2008, only to suffer huge investment losses.  A 2020 fund from Vanguard could have a totally different glide path or equity mix than a 2020 fund from Fidelity. As an example, 2010 target date funds lost an average of nearly 24 percent in 2008, according to the SEC. Losses ranged from 9 percent to a whopping 41 percent. That is a 32 percent difference for participants that were supposed to be in the same boat, retiring in 2010. A comparison of target date 2015 funds conducted in 2010 by Morningstar showed that the Alliance Bernstein  2015 Retirement fund had an allocation of 71 percent stocks, 28 percent invested in bonds and 1 percent cash; and the Vanguard Target Retirement 2015 fund was 60 percent stocks, 37 percent bonds, 3 percent cash.  11% difference in the weighting of equities is rather large.

So the target date has almost no meaning. It reminds me of when Judge Elihu Smails asked Ty Webb in Caddyshack on how he measured himself against other golfers if he didn’t keep score. Naturally, Ty said he measured himself by height.

So if the 2020 in a 2020 target date funds didn’t stand for a specific equity percentage, the participant would only know what was in the fund if they read a prospectus and annual report and we know how many participants read those.

I believe that there should be labeling requirements that will show the equity/fixed income mix next to the fund’s name in marketing materials. Until then, I’m still wary of target date funds.

My latest newsletter can be found here.

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

A Long Island business newspaper once named my old law firm’s administrator as its Chief Financial Office of the year and the first thing I asked at the time was: “How big was the ad?”

That’s because my old law firm was a regular advertiser for this publication and I appeared in it a handful of times when I was there and I’m sure because my firm helped pay that newspaper’s bills. Maybe that law firm administrator is a really great CFO, I only thought his expertise was self-promotion.

The point is not to make fun of Right-Said Fred, but the point is that awards and recognition can be bought and sold.

So when looking for plan providers as a plan sponsor, don’t be over wowed by some of these publication awards like the “100 Most Important People in the 401(k) industry” or some unknown certification because these credentials can be bought and sold.

If you don’t know the criteria for selection or the group of selecting it, you have no idea if the award or credential is real or not. It’s like Kosher food; there are now over 400+ different organizations that certify Kosher food. If you are an observant Jew, you’re not going to eat something certified by an agency where you have no idea who is actually doing the certification because some Rabbis are less reputable than others.

So when a plan provider is giving you their credentials and there are some credentials that aren’t from an organization you heard of, take it with a grain or salt or do some digging to determine whether that credential means something or not.

Otherwise, you may be stuck with a CFO who claims he’ll help your practice, except he’s too busy writing articles about his work and using law firm resources to publish them.

I sell some stuff on EBay. Basically I’m selling collectibles I no longer want for collectibles I do want (vintage graded sports cards). I set a starting bid and a buy it now price and occasionally I’ll get the EBay member who’ll ask if I’ll sell the product for less than my starting bid. The answer is always no because it’s less than my starting bid and if I wanted to sell the item for $5 less, I would have sold it for $5 less.

The point here is that if you’re the gatekeeper for a plan sponsor if you’re a plan provider, I don’t think it’s right to chisel other plan providers. I’ve been in this business for 19 years and I’ve never asked a plan provider (especially a third party administrator (TPA)) to take less than what they’ve quoted. Why? I treat people the same way I wanted to be treated and I don’t want people to do that to me especially when a TPA friend of mine consistently tells me that I charge too little. Is saving the plan sponsor an extra $250 going to help the client? Honestly, I think it’s going to tick off plan providers more than it will get your clients happy.

People may think it’s blasphemy that I suggest that you should save clients money, but getting competitive bids from other plan providers is far better than just trying to chisel plan providers you want to work with. Margins in this business are getting lower and lower and plan providers have set their fees for a reason. There are some great TPAs out there who charge a $10,000 minimum. Rather than trying to undercut their entire fee schedule, I’ll find a TPA that will charge less for a smaller plan. This retirement plan business is all about relationships and the last thing you want to do is develop a relationship among other plan providers that you care less about quality of service and more about squeezing plan providers to lower their schedule of fees.

If you go and read through the marketplace news on 401khelpcenter.com, you see something recurring that was unfathomable 10-15 years ago,. You have an insurance company offering an open architecture platform. You have another insurance company plan provider offering true 3(21) fiduciary services through another provider. You’ve had the price of plan service go down as a percentage of assets. Yet if you remember, plan sponsors were going to terminate their plans or only hire the cheapest providers out there because of the fee disclosure regulations.

It’s 5 years since the fee disclosure regulations and the sky that was supposed to fall, didn’t. The retirement plan industry did what it always did with change, it adapted. Keep that in mind when chicken little tells you the sky is falling.

The cost of correcting plan errors can be expensive. It can be expensive through corrective contributions and it certainly can be expensive through legal costs.

I met an advisor who was discussing a very large problem that a plan sponsors was going through. The plan sponsors was sold a bill of goods by the previous advisor and the need to develop a new 401(k) plan. Of course, the only problem is that for years after the plan was established. Form 5500s weren’t completed and filed.

So the new advisor is giving me the whole list of problems and told me that he was advised that legal fees would be about $75,000. There is no way in heck that those legal fees could be that high. I could probably handle that for a 1/3 of that proposal.

The point here is that legal fees to an ERISA attorney are part of the game, but like any other plan cost, they should be shopped around.

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