The Rosenbaum Law Firm P.C. Blog

My latest JDSupra.com article can be found here.

I was a volunteer and officer for an organization where I stated that the leadership (not including me) was stuck in 1986.

What it meant was that this leadership couldn’t adjust to the current age when it came to recruiting new members and raising contributions. What worked well 30 years ago doesn’t mean it will work today.

I worked for a law firm that acted as if time stood still. I tried to use social media to generate discussions that would help me net clients, but the Managing Attorney didn’t get it even though her husband was doing the very same thing for his own law practice.

The point here is that the retirement plan business continues to evolve. Retirement plan rules change; the attitudes of plan sponsors change. The opportunity to get new clients changes. You need to be open to what’s new out there and determine what will work and what still works.

By the way, the best thing to happen in 1986 was the New York Mets. Thank you.

When I was in law school at American University and we moved into a new building (20 years later, they are now in another new building) a few blocks away from the main campus. The computer sync site at the new building had a number of Apple Macs and the former law school Dean didn’t understand why we would spend money on what he called the Betamax of computers and in 1995, Apple was on its last legs. Thanks to the return of Steve Jobs, Apple made one of the greatest comebacks in business history. However, it took some time for Apple to get its mojo back and it probably could be traced to the Introduction of the ITunes Store in 2000 and the IPod in 2001. Apple didn’t become one of the most successful companies again, overnight.

When the proliferation of financial advisors that started offering §3(38), I heard a lot of their competitors claim that plan sponsors weren’t really asking for it. I heard the same thing when plan providers (including yours truly) started offering §3(16) administration services. Over time, I have heard more and more plan sponsors asking for these services.  I know firsthand because I have had a lot more opportunities and meetings with plan sponsors wanting to delegate their duty as plan administrator.

Cable TV, VCRs, Wi-Fi Internet, smart phones, and tablets. These are just some products out there that took time to get popular. Any new product or service needs time to develop and get enough traction that consumers become aware of it. It takes time and interest, but products and services that offer a value proposition will gain traction if people know about it.

So the lesson here is that plan sponsors will further educate themselves on these ERISA fiduciary solutions and they will start demanding them. It just takes time and information.

I always get the call from my third party administrator (TPA) and financial advisory clients concerning the same topic. The topic is how it’s still difficult to get across with potential plan sponsor clients on the urgency to monitor their retirement plans and hire these excellent providers.

Despite fee disclosure regulation and the increased litigation against plan sponsors, you’re always going to be going against the tide by contacting plan sponsors. Plan sponsors are active businesses who either don’t have the time and/or interest to work on their retirement plans.

There will always be a business for doctors because people get sick and they want to get treated to get better. The problem with being a retirement plan provider is that you’re trying to sell services to plan sponsors who don’t know they need your help and don’t understand that there maybe something going wrong with their retirement plan.

It’s hard to articulate to plan sponsors that their plan’s inefficiencies may increase their potential liability and that the current provider may not be doing the right thing in providing services. Plan sponsors don’t understand that they are always on the hook for liability and may pay a heavy price for their plan providers that are incompetent.

So no matter the positive changes with retirement plan in terms of disclosure and litigation that is spurring the end of some unsavory plan practices, it’s always going against the tide in getting plan sponsors to hire you. It’s not you; it’s the plan sponsor.

My latest JDSupra.com article can be found here.

My mother would always tell me that fashion is cyclical and that what was popular once will fall out of disfavor and will become popular again. I was a child in the late 1970s and 35+ years later, ruffled dress shirts, velvet tuxedos, and leisure suits have not come back into style and likely never will.

One thing that was popular a few years back is primed for a comeback and that are multiple employer plans (MEPs).  A MEP is a plan where there is one plan sponsor and many employers who have decided to adopt the plan. It essentially becomes a cooperative as small employers would join a MEP to achieve cost savings since daily 401(k) administration pricing favors larger plans A MEP was considered one plan for Form 5500 purposes and many providers were promoting it because it provided liability protection and cost savings to small employers.

MEPs were popular until 2012 when the Department of Labor (DOL) in its lack of wisdom decreed in an advisory opinion that open MEPs (where there was no relationship or commonality between the adopting employers) were not considered a single plan for Form 5500 purposes. That meant in a situation where there was no relationship between the parties, a Form 5500 was required for each adopting employer. That killed one of the great advantages of these open MEPs.

So MEPs are still around, whether they use the old definition of closed or open or not. Thanks to the fee disclosure regulation and other concerns of retirement plan coverage, individual states have explored starting MEPs for small employers in their state. The state of Washington actually has gone through the trouble of starting a plan. The DOL seems to be very receptive of these type of MEPs especially after President Obama threw his support for MEPs.

What really has held back MEPs is this advisory opinion from 2012 that was actually issued to one that belonged to a financial advisory firm.  I always thought that MEP seeking an advisory opinion from the DOL was a bad idea because to quote political activist Morton Blackwell: “never give a bureaucrat a chance to say no.” It also doesn’t help that the DOL has not issued any applicable guidance that give or subtract weight to an advisory opinion that only holds for that specific client (while letting all of us know their thinking).

With states getting in the MEP action, it’s time for the DOL that would allow states and other interested parties in starting a MEP that will lower costs for small employers and help them limit their exposure as fiduciaries.

One of the questions that I am repeatedly asked is whether the Department of Labor overreached their rulemaking capability by applying their new fiduciary rule to Individual Retirement Accounts (IRAs). I always tell people that will be for the courts to decide. Now, it looks like they will.

The Chamber of Commerce, its affiliates, and security trade groups filed a lawsuit against the Department of Labor’s attempt to stretch their definition of a fiduciary to IRAs in a Texas district court.  The argument of course is that IRAs aren’t covered by the Employee Retirement Income Security Act of 1974 (ERISA).

Every plaintiff who thinks they are aggrieved are entitled to their day in court, but challenging an administrative agency in its rulemaking has a high burden. From my limited knowledge of administrative law, I know that the plaintiffs will have to show that the DOL was arbitrary and capricious in applying the fiduciary definition to IRAs. I believe there is enough leeway within the framework of ERISA to apply a fiduciary definition to IRAs since there is a tangential relationship between IRAs and employer sponsored retirement plans (rollovers, anyone?). In addition, the rulemaking process to change the fiduciary definition has taken 6 years, so it’s hard to show that the DOL’s lengthy rulemaking process is arbitrary and capricious when the public and these industry groups had enough time to challenge the rule.

I won’t say that the arguments against applying the rule are weak because District Courts are a funny thing when it comes to decisions. There is an obvious reason why the case was filed in Texas rather than let’s say, New York. The plaintiffs went forum shopping to get a District judge that will apply a strict reading of the rule and the DOL’s relationship to guidance over IRAs. This litigation process will take some time.

When I was at Stony Brook for college, there were many student organizations that would have tables in the Student Union to attract new members. So many tables would have their members reading or doing something that distracted them from being engaged from actually attracting new members.

As a retirement plan provider, you need to be engaged and responsive with potential clients and current clients A plan provider who has their head in the clouds is going to fail to and new clients and fails to keep current ones. You can’t be afford to be non-responsiveness to the interest of potential clients and the needs of current clients.

Personally, I have never lost clients because of cost or incompetence. I have lost clients because clients no longer need my services or because I failed to be responsiveness on occasion. We all make mistakes including myself, the lesson is to learn from them.

My latest newsletter geared towards retirement plan professionals can be found here.

My latest newsletter can be found here.