The Rosenbaum Law Firm P.C. Blog

My latest article geared towards financial advisors can be found here.

When you get pulled over by the police while driving, the best way to handle is to be pleasant and not be argumentative. You listen to the officer as to why he pulled over. Being belligerent and non-cooperative will only lead you to a ticket.

When a plan sponsor is contacted by the Internal Revenue Service (IRS) or the Department of Labor for a questionnaire or a request for information, it’s best for them to be cooperative and immediately have them contact an ERISA attorney. Being unresponsive or curt with them may lead them to sniff further and look closer at the plan for potential ERISA or Internal Revenue Code violations.

I had a client that had committed a serious breach of fiduciary duty and their cooperation of the Department of Labor (DOL) agent investigating the matter went a long way into correcting the error and avoiding some serious penalties. The DOL agent was very diligent in her role and was actively finding solutions that the client could pursue in rectifying this matter. Stonewalling the DOL would have been a headache and possible litigation by the DOL. In the end, we came to an agreement and rank and file plan participants were made whole.

A few years back, a potential client who advised me that the DOL was seeking information as to why the defined benefit plan that his bankrupt company had sponsored failed to prepare audits and 5500 filings for the past several years contacted me. This potential client refused to answer the DOL’s request and informed me that he had bankrupted the plan to benefit his personal expenses. I had advised him that he should immediately cooperate and the criminal attorney at my old firm recommended to same to avoid certain jail time for embezzlement. This potential client ignored our advice and declined our representation. He was arrested a year or so later and was convicted and sent to jail for 18 months. Had he played ball with the DOL instead of hiding it, he might have avoided jail time.

Cooperation with the IRS and DOL can go along with defusing problems that threaten the qualification of the plan and increase the liability for the fiduciaries. So if a plan sponsor is targeted for an audit or a request for information, the best bet is to contact an ERISA attorney. I hate to say it, but IRS and DOL agents act differently when working with an ERISA attorney than a client with no retirement plan background. Regardless of the problem, it’s always best to cooperate. So if your client gets contacted by the IRS or DOL, pick up the phone and give an ERISA attorney like me, a call.

My newsletter geared towards financial advisors can be found here.

My latest JDSupra.com article can be found here.

Yes, it’s that time of the year again where December 31^st is around the corner for tax-deductible contributions for 2013.

The two greatest people I ever knew were my maternal grandparents, Emil and Rozalia Berla. They both survived the Holocaust, both surviving their parents and siblings. My grandfather lost his first wife and young daughter; the Americans at Buchenwald liberated him.  My grandmother was liberated from the concentration camp by the Soviets and they left her to die because she suffered from typhoid. The Soviet soldiers were surprised to see her still alive three days later because my grandmother had a will to live like no one else.

They were truly an inspiration to me; they both survived one of the most horrific and barbaric events in human history to live fairly normal lives, full of love and selflessness. As a father, I try to pay that love and selflessness forward.

One of my favorite places on Earth is Stony Brook University or as I still call it, the State University of New York at Stony Brook where I proudly graduated in 1994. The place sort of reminds me of my grandparents in the sense that the place did a lot for me and taught me lessons that I carry to this day (meeting the right friends there helped as well) and never asked for anything it returned. Like my grandparents, Stony Brook never made itself out to be more than what it was, it allowed me the freedom to grow and let my voice to be heard.

So what better way than paying back the debt I owed to my grandparents and Stony Brook (which I never will fully repay) by combining the people I love with the place I love?

So I started The Rozalia and Emil Berla Memorial Scholarship Fund that will benefit a Stony Brook undergraduate who has shown excellence in history, primarily the history about the Holocaust.  The first year for the scholarship is fully funded, but I’d like to raise more money so that the fund can grow and continue into the future.

What’s the point? I’m not the guy who is going to hit you up for golf outings, charity events, etc. This is the one cause I am going to solicit money for.

So if my articles helped you in anyway or got you a client or my free phone call of advice benefited you or if I made a connection that benefited you or made a speech at your event, I only ask that you consider giving something to this tax-deductible scholarship fund. Not asking for $1,000 or even a $100, a $5, $10, or $20 donation would suffice.

There is an online link to contribute here via credit card

For mailing payments, make checks payable to Stony Brook Foundation.  The Berla Scholarship should be noted on the memo line.

Send to Jane McArthur c/o College of Arts & Sciences, E3320 Melville Library, Stony Brook, New York  11794-3391.  All gifts will be noted with a tax receipt.

If you make a donation, please let me know because the University won’t let me know (their privacy guidelines). I truly appreciate the consideration.

I have been a New York Giants football since the days of Ray Perkins, Brad Van Pelt, and Joe Danelo and actually attended my first game where the G-Men beat the Packers.

It reminded me of a client my third party administrator (TPA)(which I worked for) was trying to smooth out a relationship with the new benefits manager of a law firm with $25-30 million of assets. Without any prodding by our firm, this benefits mangers said he was a Jets fan and he circled out from a schedule of games of the ones he would like to attend. That was the benefit manager’s message that he wanted my TPA to buy him Jets tickets and the TPA got the message by buying these tickets. Needless to say, that law firm was still a client for many years after.

Like Don Fanucci in Godfather Part II, there will always be plan sponsor representatives that would like their beak wet. This type of bribery is something that will always be available in the retirement plan marketplace, but it’s up to the plan sponsor and its providers to make sure that any gifts are de minimis to avoid any prohibited transactions and under the board conduct that could put the plan sponsor in danger.

As a plan sponsor, you need to make sure that there are checks and balances. Having one person making all the decisions is likelier to be prone to bribery and kickbacks than a situation where a committee makes the decisions. Any guidelines that restricts what gifts can be made and requirements of plan providers to report these transactions (just like labor unions and their providers must do annually) will go a long way to make sure that the selection and retention of plan providers is above board.

I get along with people for the most part because I make the effort. It’s also a lot  easier to function in the retirement plan business when you have more friends than enemies. Unfortunately, there has been a number of personal and business relationships that over the years that fell by the wayside and the common denomination between all of these relationships was a lack of communication. Aside from this job, I walked away from the greatest job I had because I couldn’t tell the guy who the company was named after that his partner of 20+ years was incompetent and held a grudge against me because he felt I was a threat to him (details in my upcoming Kindle e-book). As a plan sponsor, you can’t have relationships fall by the wayside if that’s going to hamper your role as a plan fiduciary.

The most important thing for a plan sponsor is to have communications with the plan providers and plan participants. Constant communication that is clear and understandable goes a long way to avoiding litigation or governmental penalties.

Working with your plan providers, make sure you understand your plan providers and if they speak gobbled gook like many ERISA attorneys and actuaries, ask them to spell it out. If they are speaking in tongues, get them to speak in English. Let them tell you what you need to know to keep the plan running correctly and efficiently. If they can’t do it because they think they need to speak jargon to justify their bill, get providers who will speak in English.

Communicate with your plan participants, both with required notices and with appropriate education. Giving out Morningstar profile like the h.r. director of my old law firm did, isn’t the right form of communication (sorry Pat, see you at soccer?).  Getting them the appropriate education and advice is.

A constant stream of communication between you, your participants, and plan providers will go a long way to avoiding harm.

The safe harbor notice deadline for calendar year 401(k) plans is coming December 1. This notice requirement is one of the requirements for a plan to be a safe harbor, in addition to the fully vested contribution that gives 401(k) plans a free past in the ADP test (for deferrals), the ACP test (for matching), and Top Heavy test. The notice in a sense is a proactive solution since you have to give the notice before the plan year starts (and you won’t be certain 100% that you failed until after the plan year ended), but most times, it is reactive because it is usually done in response to previous bad testing results.

I think one of the differences between a good third party administrator (TPA) and a bad TPA is how they handle safe harbor. Once again, a safe harbor option whether it’s the 3% non-elective, 4% match, or the automatic deferrals QACA match, it’s not for every plan. A plan that easily passes testing doesn’t need it and some plans can’t afford it. However, I have seen TPAs administer plans where the plan sponsor is already making a fully 100% vested contribution to plan participants that exceeds the contribution needed for safe harbor.  For example, I just came across a plan where the TPA is telling the client that they will likely fail the Top Heavy tests even though they make a fully vested, 7.5% matching contribution.  So even though they make a contribution that could have satisfied safe harbor, it doesn’t, so the plan sponsor has to make another 3% contribution to non-key employees.  So if a company is consistently making a fully vested contribution that exceeds safe harbor, there is no harm for making it a safe harbor, it can be a pro-active solution to make sure the demographics of the plan don’t eventually one day cause the plan to fail one or more of the discrimination tests.

Plan design is like a game of chess, it is based on strategy and finding the right moves to achieve the maximum contributions and avoiding unnecessary harm like compliance testing issues. The good TPA is going to be pro-active and have a plan formula of contribution that will maximize contributions and avoid unnecessary contributions.

The warranty in the electronics business is gravy for the retailers who sell it. You’ll be surprised how many people pay $20 to get a warranty on a $100 Blu-Ray player. When Best Buy was going national, they advertised how they wouldn’t sell warranties and then realized that they couldn’t turn down all that free money.

A warranty is like insurance, so you should only insure those things that have a high cost replacement. You insure your health, your life, your house, your car,  and some appliances worth insuring.

This isn’t another diatribe about the fiduciary warranty that insurance companies give away for free even though their main business is insuring risk for a fee.

This about plan sponsors who don’t insure their risk by buying fiduciary liability insurance or buying a plan service that could review their plan expenses and/or their plan document/administration.

Fiduciary liability insurance helps protect plan sponsors who find themselves also appearing as defendants in a plan lawsuit filed by an aggrieved plan participant in a town near you.  I had clients sued in a class action lawsuit where the insurance company paid $900,000 for a $1 million legal fee (there was a $100,000 deductible) and this plan sponsor won their case.

So many plan sponsors don’t want to pay for a plan review that can help them identify plan issues they wouldn’t ordinarily find unless they were converting to a new provider. I have a plan review called the Retirement Plan Tune Up for $750 and I can probably count on one hand how many I do a year. When I talk to plan sponsors and advisors, they seem interested but they treat a plan review like a trip to the dentist;: something that they will avoid until it’s too late.

Spending some shekels on a fiduciary liability policy and a plan review is certainly well worth it to avoid a greater harm later.