The Rosenbaum Law Firm P.C. Blog

It’s unfortunate, but the facts are that most people don’t respond to a complaint until there is a letter from an attorney. Service providers and companies hate correspondence from attorneys because that suggests litigation.

That is why it’s paramount that when a plan sponsor gets correspondence from the Internal Revenue Service or the Department of Labor, that they contact an ERISA attorney. It may be the difference between getting something closed out quickly and something that may result in plan disqualification. Too often, damage happens because a plan sponsor and their plan providers are too slow to seek out the experience and the advice of an ERISA attorney who are trained in working with government auditors as well as proficient in answering auditor requests.

So if you are a plan sponsor or know of one being contacted by the government over their retirement plan, seeking ERISA counsel is one of the first calls you should make.

We’ve all made that mistake. We should know better, but when it comes to hiring people, we take their word for it instead of doing 5minutes of detective work.

I have had a lot of work done to my house and my biggest mistake is not evaluating the service provider before they start their job. I hired a waterproofer that did a lousy job and was impossible to get a hold of. 5 minutes of detective work would have shown that they had multiple complaints against them with the County Consumer Affairs Department and that the person who ran the place (his wife was the licensee) was a former podiatrist who lost his medical license for Medicare fraud (which explains why he couldn’t be the licensee).

There was the contractor who claimed to be a member of a highly respected home contracting association and it turns out they weren’t.

Any time I neglected to check up on a contractor I hired to review if there were any complaints or whether they were who they claimed they were, it was on me and I got screwed.

When it comes to being a plan sponsor, you have to answer because you have a higher responsibility than a homeowner because you are responsible for the retirement plan assets of your employees.  The ERISA attorney you met? Make sure they’re a member of the state bar. The third party administrator you know? Make sure they don’t have many complaints and that their principals have clean reputations.

When you meet people in a social setting, there is nothing wrong with taking their word. As a plan sponsor, you can’t afford to because of the liability that goes along.

Not long after President Obama expressed the desire that the Department of Labor (DOL) implement a fiduciary rule for brokers who work on retirement plans; did one of Wall Street’s paid minions strike back.

Rep. Ann Wagner submitted a bill to delay the DOL’s fiduciary rule until the Securities Exchange Commission (SEC) issue its own fiduciary rule. Wagner said she introduced the bill because Obama: “presented a solution in search of a problem by proposing another massive rulemaking from Washington that will harm thousands of low- and middle-income Americans’ ability to save and invest for their future.”

I have empathy and I have written articles that states what a great trait it is to have. I understand why brokers and broker dealers wouldn’t want brokers to serve as fiduciaries. Would you accept more legal responsibility for probably less money? Becoming a plan fiduciary takes a lot of responsibility and then brokers would have to end getting better trails for the mutual funds they are pushing rather than what’s in the best interest of the plan sponsor. I understand their dilemma and what maybe fair for retirement plan sponsors, plan participants, and registered investment advisors who are fiduciaries may not be fair for brokers.

What I don’t like about the fight against the fiduciary rule is the propaganda propagated by Wall Street. A fiduciary rule will not increase costs for plan sponsors. It will not cause plan sponsors to ditch their retirement plans or end employer contributions to their plans. What it will do is push smaller broker-dealers out of the retirement plan business if they don’t want to be fiduciaries and it will create a level playing field by making sure that anyone advertising themselves as a retirement plan advisor has skin in the game by being a fiduciary because too many plan sponsors don’t understand that level of service and legal culpability.

Wall Street protected gloom and doom with the fee disclosure regulation promulgated by the DOL in 2012. They claimed that retirement plans would ditch their retirement plans because of those fee disclosure regulations. That didn’t happen. I think the gloom and doom won’t happen with a new fiduciary rule either.

I think Wall Street should allow the DOL to propose the rule before trying to stop it.

My latest newsletter can be found here.

I have been to many funerals and many 401(k) enrollment meetings and I have to say that most funerals are livelier than 401(k) enrollment meetings.  It doesn’t have to be that way.

When I started my own practice and wrote my articles free of my old law firm’s marketing department, besides the typos, I was able to interject humor and movie references that allowed my articles to be widely read and distributed. I took something that is ERISAese and wrote it in a way that has been entertaining at times. The same can be done with 401(k) enrollment meetings.

Advisors who work these enrollment meetings can liven it up by lowering the language to a level that most plan participants can understand and when I say lower the language, I’m not talking about cursing. I’m talking about using a language that most non-financial professionals can understand. It’s all about connecting with the audience and better connected audience at an enrollment meeting will get more 401(k) deferrals and more assets under management as a financial advisor.

A financial advisor should run a trivia contest or a raffle and use a $25 gift card to a store or restaurant as bait to entice attendance and participation. Anything that can get more involvement by plan participants to get engaged at these meetings will help a plan sponsor limit their liability and get financial advisors more assets under management. It’s a win-win and more livelier than a funeral.

The White House unveiled their plan to direct the Department of Labor to unveil a new fiduciary standard rule that will curb the conflict of interest and excessive fees that the White House says that mars 401(k) and IRA investing.

This is nothing new, except a new renewed push to get brokers up to the same standards that registered investment advisors (RIAs) have to follow. Hebrew National always touted their frankfurters had to answer to a higher authority than the USDA because they were kosher and RIAs always had to answer to a higher standard because they were fiduciaries. Let’s not panic because it will be months before the DOL comes out with a proposed rule. So it will give time for everybody to get ready for rulemaking and then the fighting as a result.

Why the fighting? It’s not the first time the DOL will propose a rule on the fiduciary standard. It’s going to be whether the DOL can withstand the pressure of Wall Street political interest money that will influence Congressional leaders from both sides of the party to fight it. That is why the DOL withdrew their first proposed change a few years back.

The Wall Street attack will be severe and will get Congressional leaders stating that the fiduciary standard for all 401(k) investment professionals will increase costs because many broker-dealers will withdraw from the marketplace. They said the same thing about 401(k) fee disclosures and how it would make plan sponsors ditch their 401(k) plans which didn’t happen. Will the DOL withstand the attacks and the Wall Street propaganda this time? Your guess is as good as mine.

Lockhead Martin settled their excess fee lawsuit concerning their 401(k) plan by making a $62 million settlement with plan participants. That is probably the highest excess fee settlement on record. I know how people think and most plan sponsors like yourself will say: what me worry? I don’t even have $62 million in my 401(k) plan that I sponsor.

Settlements like this Lockhead Martin case s always about a trickle down effect. There will be more concern about excessive fees and companies as large or even smaller than Lockhead Martin will get a review from an ERISA litigator interested in potential class action lawsuits. A small or medium sized plan sponsor may not get the lawsuit from a class action ERISA litigator, but there are other concerns. There can always be that lone wolf former plan participant who will threaten litigation for a quick 5 figure settlement or there maybe action by the Internal Revenue Service and the Department of Labor that can certainly get traction.

A plan sponsor needs to be vigilant about excess fees and a $62 million settlement may never be an issue for their smaller plan, but there is always a trickle down effect that excess fees will bring more litigations and more oversight by the government.