The Rosenbaum Law Firm P.C. Blog

When I first started as an ERISA attorney in 1998, almost every plan I worked on except for standardized prototype plan documents were submitted to the Internal Revenue Service (IRS) for a favorable determination letter to make sure that the plan documents were compliant with the Internal Revenue Code.

When the IRS changed the remedial amendment period over 10 years ago for the cycle approach for individually designed plans, it eliminated the need for plans that use a prototype or volume submitter plan to seek letters on their own. The requirement was left for individually designed plans when the restated according to the year of their cycle.

Now, the IRS wants out of the determination letter process altogether. For restatement cycles beginning after 2016, plan sponsors will no longer be able to apply for determination letters on their individually plans, except for initial qualification and qualification upon termination.

What does this mean? Well it means that individually designed plans will have to be updated without seeking IRS approval, which makes me think that many plans will fall out of compliance because IRS approval kept these plans in compliance. That probably means more plans will be found to fall out of compliance upon audit, which means more money for the IRS in penalties. Also, less time that IRS agents spend on determination letter requests probably will allow them more time for audits and probably more plan audits. If a plan already was using a volume submitter or prototype plan, this change will be of no consequence since these plans stopped applying for determination letters years ago.

When I was in college in the early 1990’s, I was heavily involved in student politics. I would go and buy things that made me look important even when I really wasn’t. I got the beeper that no one really called and I had one of those Day Runner organizers.

People who grew up today have their IPads, but the Day Runner was the IPad of its day because it would include my contacts, notes, calendar of events, etc. I used to call my leather Day Runner, the “football” in honor of the military briefcase that has all the nuclear weapon launch codes that a military attaché was attached to by handcuffs. Again, sounding more important than I really was. By the way, they actually still sell Day Runners.

Plan sponsors need their own “football”. They don’t need nuclear launch codes, but they do need to keep copies of their plan documents, fiduciary meeting minutes, investment policy statement, investment education materials handed out to participants, fiduciary bond, liability insurance binder, enrollment meeting attendance sheets, and valuation reports. Thanks to technology, they don’t have to be in a Day Runner or a binder, then can be electronically saved after being scanned. Since paper doesn’t too well to paper, fire, and the trash, a plan sponsor should save all plan information to a USB flash drive and some sort of cloud.  This “football” will make sure the plan sponsor has all the information they need to defend themselves in an audit and/or litigation.

The plan sponsor “football”. It’s just one thing that if they have, they can’t fumble away. Even the New York Jets  can’t fumble that.

My latest JDSupra.com article can be found here.

Good TPAs do a heck of a job in helping plan sponsors administer the plans. The only issues I see with these great TPAs is that as a group, their marketing isn’t good. That’s not such a slight because I feel other professional services firms (especially law firms) don’t do a job of marketing as a whole.

Nobody likes to be taken for granted, I know as I had a family who did that. I think TPAs are taken for granted because they don’t convey a message to their plan sponsors clients about their value and what they do to keep a plan sponsor’s plan in order. If you don’t let people know what you are doing, then they will probably have no idea what you are doing.  If plan sponsors know what a great job their TPA is doing, the less likely they will make a change even it means not saving a few measily shekels and pissing off the advisor who wants to make a change.

My latest newsletter for retirement plan providers can be found here.

My latest JDSupra.com article can be found here.

My latest newsletter can be found here.

Retirement plan providers need to look at their fees and determining what work they are doing for their retirement plan clients because like me, they may try to break down their plan expenses into a day rate and try to figure out what their providers do for them.

Value is one of the more important concepts in business and plan providers (thanks to the transparency of mandatory fee disclosure) are under pressure to show their value to plan sponsors. By showing value, plan providers have the power to dissuade plan sponsors from every contemplating someone else from taking their spot as a plan provider.

When I talk about the Retirement Plan Tune-Up (the legal review for plans for only $750, cheap plug here), I always talk about the client who asked me to do one for them.  Plan was safe harbor 401(k) and administration looked good. On this $14 million plans, broker was being paid about 60 basis points, which was pretty high for a plan of that size. When I asked for any plan education materials, investment meeting minutes, or an investment policy statement, I was told that the broker never provided them to the client. Let’s just say that based on my advice, the broker was replaced by a 3(38) fiduciary for about half the cost. Needless to say, this broker didn’t show value.

Too many retirement plan providers focus on cost and I think that’s not a great marketing plan because saying you’re cheaper isn’t going to turn a lot of heads especially when there is more discussion and concern about fiduciary liability for plan sponsors. Stressing value is a better marketing plan, it shows plan sponsors how important they are and how much liability protection for a reasonable fee by using this provider. A plan provider can always stress low cost in relation to the competition as long as they stress the value of the services provided especially because low fees is often equated with the no frills and plan sponsors can’t afford plan provider that don’t offer frills.

Showing value is one of the most important concepts in retaining clients and it’s better to market it than just saying you’re cheaper.

My latest JDSupra.com article can be found here.