The Rosenbaum Law Firm P.C. Blog

When I started my national single employer retirement plan practice, I learned that getting clients is something that was going to be dependent on me. Clients and referral sources don’t fall into your lap.

Before JDSupra and before Mike Alfred from Brightscope’s suggestion that I write on LinkedIn, I went to a lot of networking events to meet other business owners. Most of the events were a waste because these events didn’t have the people that could act as a referral source for potential clients.

Many times I would meet an insurance professional who would invite me to their office. The idea was that we could network, but often, the conversation would be about my financial status and my insurance needs. There was always the hint of the professional that they could help me get clients, but again, it was more about a sales pitch of what they could do for me.

When I meet any type of financial advisor, third party administrator, or accountant, I never ask who their ERISA attorney or who drafts their plan document. When you meet someone at an event or an office, they will learn what you do and if they like what they hear and have some trust in your abilities, they may call on your for work on their own plan.  If people know what I do, then they’ll call me if they have issue and think I can help them.

The retirement plan business is all about relationships. Any provider who is so intent on having you as a client with the implied suggestion that they could help you get clients is something to avoid. Too much of our industry is built on quid pro quos and the fact is that when someone told me that they could get me clients, they have never gotten me clients.

Other providers should be outlets as referral sources, not as direct clients. If they become clients, that’s great, but the reason they have become a direct client is likely because you didn’t go for the hard sell.

Pick another retirement plan provider to handle your retirement plan needs because you like them, not because they say they will get you clients, because they won’t.

My latest JDSupra.com article can be found here.

Being a plan fiduciary whether you are a plan sponsor or a plan trustee is serious business. You can get into trouble for stuff that you think is rather innocuous and the reason you think it’s innocuous is probably why you don’t understand the role of a fiduciary. So here’s a basic refresher.

Being a fiduciary requires the highest duty of care in equity and law? Why? Obviously when you are responsible for someone else’s money, you have a higher duty of care than if you are responsible just for your own money.  It’s like buying any type of product. If you want to overspend for a product with your own money, that’s OK. When you’re spending someone else’s money, that’s not.

If you have money saved away and you want to hire a broker who is going to put you in an investment that is has a high expense ratio and nets the broker a bigger trail than anything else, that’s your problem. However, when you are holding the retirement plan assets of your employees, you need to make sure whether the investment is prudent and whether the fees are reasonable.

If you hire an incompetent professional to handle your matters, you can easily sue the professional for malpractice. When you hire an incompetent professional to handle your retirement plan, you can be sued too because you had the fiduciary responsibility to hire competent plan providers.

I have heard of so many plan fiduciaries complain that they are responsible for the mistakes of their plan providers or for paying too much in plan expenses, but that’s the nature of the role. It’s like being a parent and complaining you have to change diapers.  You take on the job, you do the job and when it comes to being a fiduciary, you need to make sure you are doing a competent job.

That’s the role of being a fiduciary and it can’t get more basic than that.

When I was working for a third party administrator, we were getting bought out. Going from a closely held business by a larger business would bring some changes. I told employees that whenever there is a purchase of a business by another, change was inevitable. I told that to one of my fellow employees who was a bit nervous and told the boss. I was told that I was running morale, but that’s a fact of business. Change is inevitable. Heck every sports manager or coach is on pins and needles when there is a change of ownership or in the general manager’s office.

As a retirement plan provider, change of control of your clients and/or potential clients can be a blessing and a curse. If you have been prospecting a client with a change of the staff in control of the retirement plan, perhaps a new set of eyes can make the plan sponsor understand why hiring you can help limit their potential liability as a plan fiduciary.

On the other side of the coin, having a change of leadership for a current client can often be bad news even if you are doing the greatest job possible. I will never forget the story of a broker that my TPA did a lot of work for. He was fired from a company he did a lot of great work for because there was a change of the top operating executive. As it turns out, the Human Resources Director who liked the broker also got fired too. The Human Resources Director blew the lid on why there was a change of broker; the chief executive officer hired a new broker and was receiving a kickback. It’s hard for any broker to compete with that kind of chicanery. I had a friend who is a top fiduciary being let go by a plan because the new folks in charge claim that he isn’t a fiduciary, even though his work and his contract says otherwise.

People say that change is a good thing. Change can be a good thing, but there are times when change isn’t good for the retirement plan provider and their clients.

The continuing success of building my law practice is directly attributable to my work in social media. My articles, newsletters, and the blog that you are reading is the major reason I have been able to continue to grow my retirement plan practice on a national level. The idea that social media would help build my practice was nothing new. I was trying to do the same at the law firm that I worked at for a couple of years. I tried pushing the idea that a blog, LinkedIn discussions, and articles would be able to raise my profile and client base with very little cost.

Unfortunately, I worked in a bureaucracy and a managing attorney who was more interested in staying in power than getting anything done. Of course to counter my interest in social media, Lois decided to develop a social media committee. The committee wouldn’t include the two associates that were interested in social media (I was one of the two), but the technology manager that wasn’t a lawyer and two partners that had no interest in pushing social media. It seemed tome that whenever Lois didn’t want something done, she created a committee for it. The role of the committee was to not get anything done, it was just to say there was a committee for it. Months later, I asked the technology manager in a line stolen from The Outlaw Josey Wales: “are you guys doing anything about social media or are you just whistling Dixie?” Almost four year later, they’re still whistling Dixie.

When it comes to a retirement plan sponsor, starting committees to manage their retirement plan is a good idea. But if the committee never meets and never gets anything done, it doesn’t do what it was supposed to do. What it’s supposed to do is help manage the plan. If a plan sponsor puts a process in place to manage the plan, the process isn’t enough. Completing the process is.  It’s nice to have an apparatus in place, but if it’s not used, it’s just window dressing and window dressing doesn’t help the plan sponsor in any defense against claims they breached their fiduciary duty.

It’s incumbent on a plan sponsor to develop a process in place to manage the plan and to actually implement the process. Some will say that a plan sponsor that creates a process that it never implements is worse off than the plan sponsor who never had a process. I don’t know about that, but a committee that never meets or never implements anything for the plan is just another feather in a plaintiff’s case against any plan sponsor that don’t do their job.

Being a plan sponsor is about a process and not a rate of return, but plan sponsors need to actually implement and follow the process that they created.

My latest JDSupra.com article can be found here.

I just recently restated the plan document of a plan sponsor that was leaving a payroll provider third party administrator (TPA), one of the 2 big playersin the market.

The plan document looks like it could have been drafted by the folks at the Olympia Cafe on those old Saturday Night Live skits. Maybe the choices were a little bit more than Pepsi or cheeseburger, but the fact is that many of the provisions were very stringent and limited the choices in the prototype that the employer could select.

If the employer wanted a safe harbor 401(k) contribution, it had to be a matching contribution. If the employer didn’t want to offer hardship distributions, that wasn’t an option. Neither was there a choice for a cross tested/new comparability allocation of profit sharing contribution.

It’s nice that a payroll provider TPA wants to limit choices and facilitate administration by having a limited amount of differences between plans.  While this plans must  “fit the box” approach does wonders to cut down issues on day to day plan administration for the payroll provider TPA, I believe this box approach hurts plan sponsors that have the bank account and the demographics to support a plan that doesn’t fit that payroll provider TPAs’s box. A plan sponsor may leaving money on the table because they didn’t fully maximize their  contributions or make some contribution unnecessary.

The plan sponsor client should always come first, the plan document should fit the needs of the employer and not of the TPA doing plan administration.

I don’t know what’s going on in the south shore of Long Island over the past year and it wasn’t just Hurricane Sandy.

A year and a half ago, the treasurer of my local school’s PTA stole more than $5,700 for her own personal use including thrown her daughter a party at the American Girls store. That was small potatoes.

A financial advisor who was under investigation for stealing $400,000 from two clients, stole $1.6 million from the special needs camp that his child attended.

As the Department of Labor’s Phyllis Borzi noted that multiple employer plans are suspect because one promoter of it stole $3 million from participant accounts, I guess she might have issues about a PTA fund and a special needs camp fund because there were thefts there too. Of course, Phyllis, I’m kidding.

A simple second signature requirement on a PTA or special needs camp disbursement probably would have nipped those thefts in the bud or some sort of extra oversight.

Whether it’s a multiple employer plan or a single employer plan or  a hot dog stand, people will steal when there is no one looking. Is it easier to rob the local corner store or the Federal Reserve Bank in New York? Most thefts are usually involving small single employers plan where the employer is using employer money to float a failing business. A small plan with a  bundled provider is more likely to have a theft than a plan that requires an audit and has multiple plan providers. Bernie Madoff was only able to perpetuate his ponzi scheme because he was the advisor and the custodian, so he could claim where the assets where even though they weren’t there.

A multiple employer plan or a single employer plan are not vehicles for theft by themselves, they can be if  everyone is looking the other way.

As plan sponsors, it’s nearly impossible to make your plan theft proof, but you can make it more difficult by seeking enough independent providers that act as a check and a balance on the other providers and the plan sponsor.

Glad to have been part of this great article for FiduciaryNews.com. Find it here.

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