The Rosenbaum Law Firm P.C. Blog

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

Henry T. Ford is considered the father or the pioneer of the modern day assembly line of manufacturing.  His development of the Model T and its way of manufacturing is considered one of the great developments in 20th century capitalism. His assembly combined the idea of interchangeable parts  and was a model of efficiency. His efficiency did have its limitations. In his autobiography, Ford wrote: “Any customer can have a car painted any color that he wants so long as it is black”.

There are many retirement plan providers that have an assembly line approach when it comes to retirement plans. These providers use their own standardized prototype documents and have a consistent plan design structure. Like the color of a Model T, plan sponsors usually using these providers have no choice in plan design and these limitations may cost the plan sponsor money because they are not able to maximize employer contributions through plan designs that may increase contributions to highly compensated employees, which many times are the owners of the plan sponsor.

There cannot be a cookie cutter approach to retirement plans. Every plan is different. Even plans sponsored by the same employer are different. Every plan has its own set of circumstances as to why they were set up, what the goals were when set up, as well as the demographics of the plan sponsor supporting it. Their vesting schedule, eligibility requirements, and employer contribution should be drafted to the specific needs and demographics of the plan sponsor. Plan documents are legal documents and legal documents have legal consequences. They should not be churned out by someone who is not an ERISA attorney or a paralegal with extensive retirement plan drafting background.  Prototype plan documents that have that fill in the blank document look can be a very cost efficient, but they have their limits and there are very often situations where the plan sponsor’s needs cannot fit within the confines of the plan document’s limited choices.

Retirement plans are not widgets or tubes of toothpaste. Like a suit, they have to be custom made or tailored to meet the specific needs of the plan sponsor. Failure to have the plan fits the needs of a plan sponsor is the same as my 6 year old son wearing his 4T clothes or my clothes.  Plan design and drafting is an essential part of retirement plan administration and should not be discounted.

These plan providers that use that assembly line approach that doesn’t offer new comparability plan design or a variety of choice among plan provisions does a disservice to the plan sponsor. Cost for a plan sponsor in retirement plan administration is a concern, but not the overriding concern. Plan sponsors need providers that can draft and administer the plan so it fits their needs.

My latest JDSupra.com article can be found here.

The Department of Labor (DOL) issued their final new Fiduciary Rule on Wednesday, April 6^th that will have far reaching changes to the retirement plan industry.

Aside from some paperwork, disclosure, and effective date changes, very little was really changed from the proposed rule that will require all financial advisors who work on retirement plans and individual retirement accounts to act in a fiduciary role. Registered investment advisors have always played that fiduciary role, brokers will now have to step up to that role which can impact their business when they get different remuneration based on the investment they sell.

The implementation date will be January 1, 2018. Don’t be surprised that changes because the DOL does postpone effective dates quite a bit. A change in the political party controlling the White House on January 20, 2017 can stop the regulation before it’s implemented.

A list of the changes made by the DOL to the proposed rule can be found here.

Who can forget Alec Baldwin’s speech in Glengarry Glenn Ross on how salesmen should “Always Be Closing” and how coffee is for closers only? It was the highpoint of a great movie.

I’m not going to go through a discussion on sales, but a cautionary tale that you have to advise your clients to navigate a path where other plan providers will try to sell you client products or services that they don’t need. So instead of Always Be Closing, you should “Always Be Watching” what happens with your client.

I have a retirement plan sponsor client trying to terminate their retirement plan. The retirement plan has a fully paid up insurance policy and the sole owner participant wants to purchase that policy from the Plan. So my client talks with a salesperson with the insurance company about the policy. Of course, the new salesman wants to sell my client another insurance policy that he doesn’t need since the business is folding and he’s 71.  So I always watch and my client avoided buying a new policy.

I advised my client that he should open a new bank account for his retirement plan at the local bank when dealing with transferring the life insurance policy. So my client goes to the local bank and just wants to set up a bank account for the plan’s trust. The bank tells him that he has to meet with the financial advisor at the bank, i.e, the broker. Why does anyone have to meet a broker to open a bank account? Not to talk about how my Mets will do in 2016.

It’s not enough to service the client, you always have to watch and make sure that the client doesn’t end up buying retirement plan services and products that they don’t need.

When the great Bill Parcells (go Big  Blue!) was the head coach of the New England Patriots, he got into a tiff with owner Robert Kraft because Parcells wanted more of a say in the personnel decision-making process. Parcells famously said: “They want you to cook the dinner; at least they ought to let you shop for some of the groceries. Okay?”  It sort of reminded me of my old law firm, where I was asked to feed people (by getting new clients) and I had someone who doesn’t cook (the Advertising Committee of one) tell me which ingredients I could use. It also reminds me of my synagogue where I served as Vice President in organizing events, but had no say in how the place was run. Do you see a pattern?

I admit it; I am more comfortable when I have control over things. When I have control, I succeed or fail based on my decisions instead of a bureaucracy that is less interested in my success and more interested in playing political games.

As someone who likes being in control, it should be no surprise that I like the proliferation of ERISA §3(38) fiduciaries and I think registered investment advisors (RIAs) who are interested in the retirement plan business should have the goal of offering it to some of their clients.

Once again, the use of ERISA §3(38) fiduciaries is a great fit for some plan sponsors who have none of the time or interest in keeping up their end in the fiduciary process of selecting plan investments and educating plan participants. The ERISA §3(38) fiduciary is a great solution for these type of plan sponsors because the fiduciary is defined as an “investment manager” under ERISA and assumes almost all of the liability (hiring a bad fiduciary is a breach of the plan sponsor’s fiduciary duty) of handling the investment decision making process.

I think advisors (as long as they are surrounded by a good team including a good ERISA attorney (cough, cough) ) should consider entering that space so that this solution could be offered as one of their services.

While some RIAs consider the liability aspect of it, the increased liability will always be offset by engaging in good processes (recording decisions, offering educating, memorialized investment choices in an investment policy statement) and by picking the right type of plan investments (most of these investment managers are using passive funds such as exchange traded funds, Dimensional Fund (DFA) and Vanguard index funds).

I always say that if you can’t do it right, don’t do it all. ERISA §3(38) fiduciaries should be for those RIAs that are serious about their trade as retirement plan financial advisors and should not be for those who don’t understand their roles as financial advisors for retirement plans. If you are serious about entering the space, speak to an ERISA attorney or speak to current ERISA §3(38) fiduciaries who partner with RIAs who don’t want to be in the space like James Holland at Millennium.

In addition, I will be making an announcement in the coming year on how I will be providing a bigger role for RIAs who want to be in this field.

As an ERISA §3(38) fiduciary, you get to buy the groceries and cook, the only thing to avoid is burning the meal.

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

My latest JDSupra.com article can be found here.

My latest newsletter can be found here.

My latest article can be found here.