The Rosenbaum Law Firm P.C. Blog

My latest newsletter can be found here.

My latest JDSupra.com article can be found here.

I always talk about my open door policy with financial advisors and third party advisors where I will help these plan providers out without me actively seeking their business. I kind of have that liberty because it’s my own law practice and I don’t have the stress to bill when everything at the end of the month is mine anyway.

The reason that I take the phone calls and respond to the e-mails is the belief that the retirement plan business is a relationship driven business and I learned that by a friend of mine named Richard Laurita (may he rest in peace). He was the salesman at two TPAs I worked with. Rich was all about developing relationships in this business. I once joked that he probably couldn’t spell 401(k), but he didn’t need to because the relationships he developed over time brought him and his employers business. I follow the same approach and quite honestly, most of the plan providers I have talked to over the past 4 years never brought me business and that’s fine because some day they might. The help I give in these types of conversations are free and I can probably say on one or two fingers how many plan providers abused that free help. I believe that if you help people, they will remember you.

So here is the part where I talk about one of my success stories. There was a registered investment advisor with absolutely no retirement plan clients and he wanted in this business. For over two years, we spoke on the phone and met where he introduced me to people and I introduced him to people, but no business for me. I’m a patient man, that’s what happens when you go to school for 22 years straight. Over time, he took my advice on how he can partner with other advisors and he attended conferences that I suggested he attend.

Well that registered investment advisor who was honest that he didn’t know much about that retirement plan business and wanted to seek help from those that could, including yours truly, has netted a few retirement plan clients and is now an ERISA §3(38) fiduciary (hiring me to develop his service agreement at a flat fee).

This story isn’t about me, to me, it’s about how plan providers can get ahead just by being honest on what they don’t know and developing the relationships with those that do.

One of the rules I live by is that I believe that you should never let someone who dislikes you be in a position where they can hurt you. Let’s just say that have a former boss who should have taken that advice. That is why I’m surprised that retirement plan sponsors don’t make more of an effort to entice former employees to rollover their account balance into an individual retirement account.

Former employees can be a headache; I know I have been one. When a former employee leaves, it’s best to cut all ties. When it comes to a participant who is more likely to complain to the Department of Labor or sue a plan sponsor over their retirement plan, a current or former employee? I say a former employee, because of fewer repercussions.

While the distribution rules under retirement plans require a former employee’s consent for distributions of $1,000 or $5,000 (depending on the plan’s terms), it’s a good idea to tempt them to roll over their account balance and there are a number of reasons for that. Distributing required notices is tough enough to participants at work, it’s going to be more difficult to distribute notices to former employees that you may not have current addresses for. You’re also less likely to offer investment education to participants who no longer toil on employer soil. Participants who receive no investment education may cause you unnecessary liability for their investment losses because they will contend they didn’t receive the necessary information so that the employer could avoid liability under ERISA  §404(c).

Having former employees as a participant is a headache when you can’t find them or when they die and they have no valid beneficiary information. Working on the human resources needs for employees is enough, why do you need the hassle for employees who no longer work for you.

In addition, having too many former employees as participants may also require you to file an audit for your Form 5500 if you hit that magic 120 number thanks to those former employees. Nothing worse than to pay an auditor $12,000 to $20,000 for an audit you may not have needed if you tried to get former participants to take their money and run.

When your former employee has that exit interview, make sure they understand that they have an account balance under your retirement plan and it’s probably the best bet for them to take it with them and invest it any way they choose and tell them of the opportunity to roll over those assets into their new employer’s 401(k) plan.

As Elsa in Frozen might sing: “let it roll, let it roll.” Sorry, I’ve seen that movie 30 times in the past 3 months.

Often time the newspaper will have big headlines on the front page when somebody gets busted, but a small paragraph when that same person gets cleared of all charges. That’s the nature of the newspaper business; if it bleeds, it leads.

In 2012, Tussey vs. ABB, plan participants were awarded $36.9 million by a United States District Court. The note was that ABB’s 401(k) plan record keeper, Fidelity, was also a defendant and held liable in its part that the plan was charged excessive fees. Fidelity was ordered to pay legal fees and $1.7 million for breaching its duty on the float rates it charged on plan assets it invested. ABB was paying the bulk of the award, but any advisor or third party administrator competing against Fidelity was trumpeting Fidelity’s liability.

Fast forward two years, the Appeals Court for the 8^th Circuit still held ABB responsible for $13.4 million in not monitoring excessive fees, remanded to the District Court to fight over from scratch, the $21.8 million ABB was at fault for using the wrong share classes on $1.4 billion 401(k) plan, and most importantly, vacated Fidelity’s liability.

Fidelity won the battle, but has lost the war, the war of public opinion. While it was cleared of wrongdoing, the fact is that ABB’s 401(k) plan paid excessive fees that Fidelity was helping to run. The fact that Fidelity can skate by because it’s not a fiduciary is irrelevant because the fees were too damn’ nigh and most people don’t know that the mammoth $36.9 million award was just reduced. Fidelity’s competitors may tout the original Tussey decision without detailing the facts that Fidelity won on appeal.

The lesson to be learned here is that plan sponsors are alone in the need to benchmark fees (which ABB did not do) and if you’re a provider charging excessive fees, being a defendant in an excessive fee case that you win on appeal and the plan sponsors loses, isn’t much of a victory. It’s hollow when everyone knows you charged too much.

My latest JDSupra.com article can be found here.

I am a fan of professional wrestling and I’m not ashamed to admit it. I kind of claim that I had no choice in the matter since both my grandfathers watched it, so I say that it’s in my blood.

I have known it isn’t real almost ever since I ever watched it, but I also have watched Dallas that long and I know that’s not real either.

Even more than the technical aspect of a wrestling match, I am very interested in the business aspect of it. So a lot of time when I talk about business and getting clients, I use pro wrestling terms.

The business of professional wrestling is about drawing money and getting rear ends in seats, that’s it. Certain wrestlers are given a push to get over and some are buried because they’re not drawing a dime. In English, a push is an attempt by the wrestling promoter to get that wrestler to win matches and get over (accepted) with the crowd. Sometimes the wrong people get pushed and business suffers (not drawing a dime) and they get buried (deemphasized).

I liken my time at that semi-prestigious Long Island law firm (sorry, Lois) in wrestling terms. I could never get over by drawing money because the law firm refused to push me or the services I could offer. I wanted a national ERISA law practice and for some reason, they didn’t want to push someone who had ambition and was a lowly associate. They pushed other attorneys; some even becoming partner and these attorneys couldn’t draw a dime of business because they didn’t have the capacity to get over (bringing in clients).

What does this have to do with the retirement plan industry? Plenty. Whether it’s a law firm, third party administrator, financial advisor, or even the Conservative synagogue where I serve as a trustee, you should never lose sight of why you are here. It’s all about drawing money and putting rear ends in seats (having a client list that can financially support you) and everything else is secondary. Of course marketing to potential clients and actually servicing them competently is all about drawing money and it’s part of the way of getting over (popular) with the audience (retirement plan sponsors) that translates to more clients. Just never lose sight of what pays the bills and that’s clients and you can increase business by getting more clients. That is just a fundamental requirement of any business and I didn’t need an MBA to figure that out, I just went to the WWE business school.

Being a retirement plan provider isn’t about having your office turned into a country club or serving some higher purpose because you see your business as something nobler than it really is. You are helping retirement plan sponsors and their employees; you’re not doing the Lord’s work. It’s about doing everything to draw money and you do that by successful marketing and spreading the word about your work by doing a heck of a job by your current clients.

Like I always say, it ain’t brain surgery.

Any radical change to a business, industry, or an organization is going to take some time to adjust. Sometimes it becomes a work in progress because there maybe some tinkering with that change because of some negative blowback or unintended consequences.

The retirement plan industry was an industry that was cloaked in legalese, hidden fees, and jargon. I blame the legalese and jargon on the attorneys and many retirement plan providers who felt that using jargon was a clever way to hide their fees.

The Department of Labor (DOL) tried to fix that issue through fee disclosure so plan sponsors and plan participants so that they finally knew what they were paying for.  Many plan providers were able to clarify these fees with easy to understand disclosures for both plan sponsors and plan participants. Many other providers did not, either because they were trying to continue to hide their fees or (in the most likely scenario) were drafted by attorneys who only speak in legalese.

Since many plan sponsors are confused, the DOL is seeking comments on a proposal to require some sort of guide to fee disclosures if the fee disclosures take up quite a few pages. I call it the guide to the guide, mainly because the initial disclosure was supposed to be that guide to fees.

I’m a big fan of easy to understand fee disclosures and one of the big reasons for this mess is that the DOL did not provide sample plan sponsor disclosures that they had done with the participant disclosures. Maybe it was difficult for the DOL to come up with sample language that any plan provider could use, but any point of reference would have helped.

I just know when it comes to my retainer agreements with clients; my fees are explicit and easy to understand so that the client knows what it will cost them. Except for government audits, my fees are flat and have a point and an end (unlike fees based on the hour). There should be no reason that a financial advisor or third party administrator’s fee disclosure should be more than a page or two. That’s just my opinion.

So for those plan providers that were slaving away on those fee disclosures, you may have to go back to the drawing board.

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

I’m a beer snob and I’m proud of it. I like the taste of beer and I’m not going to waste my time, money, and calories on a mass-produced inferior product like Budweiser, Bud Light, Coors, and Miller. I would rather drink water than their beer-flavored water. Bud Light and Budweiser are produced for the masses, Sam Adams and the other microbreweries are produced for people with taste for beer.

I’m also a TPA (third party administrator) snob. I believe that plan sponsors have better outcomes when they hire better TPAs. They have less administrative issues and plan designs that are more efficient.

For the past 4 years, I have been highly critical of payroll providers that serve as TPAs. Annually, I have written an article that has been circulated by the good TPAs and financial advisors around the country.  Other than being threatened with litigation by one payroll provider TPA (which they never pursued after threatening me to change the article, which I didn’t), I have not been contacted by representatives by a [payroll provider TPA. While part of me thinks that it maybe best to ignore someone like me, the plan provider in me who wants to get better thinks it’s a good idea to engage your critics.

So a representative of a payroll provider did contact me. He might be a lower level representative, but I give him credit for making the attempt. He suggested that he would have a higher up contact me to go over the issues that I have with payroll provider TPAs in general. Despite my criticism of them in the past, I have enough of an open mind to know that I can be wrong about payroll provider TPAs. Once again, it was proven to me that my opinion is still reasonable.

The representative made the typical payroll provider TPA mistake to justify why my opinion was wrong. He claimed they are one of the largest TPAs out there. The mistake is trying to equate popularity/size (number of plans they serve as TPA) with competence. That’s like trying to equate Bud Light (the most popular beer in the United States) with taste.  We know that many times, the more popular product in the marketplace is not necessarily better (PCs vs. Apple Macs, VHS vs. Betamax). The fact that plan sponsors think that it’s a good idea to have their plans administered by their payroll provider doesn’t mean in reality that it is.

So a higher up contacts me with this payroll provider who is involved with the administrative side of the ball. While this payroll provider stated that they did new comparability/cross tested allocation, they do not do any work in the form of aggregated testing with a defined benefit plan (which is inconsistent what some of their salespeople have claimed when a TPA client of mine was trying to recruit one of their clients). In addition, when I told him of some of the glaring mistakes they have made and how fixing their plans through self-correction or voluntary compliance is a boon to my legal practice, there was no answer. I was just very underwhelmed that he had no explanation for these issues.

Again, I have an open mind and my views are not set in stone. However, the payroll provider TPA have gone out of their way not to prove my opinions are wrong. Until then, I’ll continue to mount my criticism.