The Rosenbaum Law Firm P.C. Blog

Many of my great friends in this industry are due to making connections through LinkedIn. The groups section have always been a great meeting place for likeminded professionals in the retirement plan industry. Those likeminded individuals such as myself were always critical of an industry that had no transparency and rampant conflicts of interest.

Most of us in these 401(k) groups had very similar views, how this lack of transparency put plan sponsors and fiduciaries at risk.  There was one individual who wasn’t a third party administrator, broker, financial advisor, or having anything remotely to do with the day to day administration of 401(k) plans or any other retirement plan.

This fellow insisted that people like my good friend James Holland and I were selling fear, that plan fiduciaries had no real threat in the exercise of running a retirement plan. This fellow wanted proof that plan sponsors of all sorts of sizes were actually at risk.

Well if he wasn’t banned by many of these LinkedIn groups, I’d let him know about an interesting article I read.

Groom Law Group had an interesting article concerning Department of Labor audits. Jennifer Eller from Groom noted,  “During fiscal year 2012 (October 1, 2011 – September 30, 2012) EBSA closed 3,566 civil investigations. Of these, 2,570 (72.1 percent) resulted in monetary recoveries totaling $1.27 billion. These recoveries included $911 million in prohibited transaction corrections; $188 million in plan assets restored to plans, and $12.2 million in voluntary fiduciary correction program filings. The Solicitor of Labor filed 100 civil lawsuits (out of 218 referred).”

While you may scoff that there were only 3,500+ investigations, what you can’t scoff at was that more than 70% of these adults resulted in a recovery and only 25% of these audits occurred because of a complaint from a plan participant. So that means 75% of these investigations were likely random.

With 72.1% of these audits resulting in a recovery (2,570 audits out of 3,566), that means the average recovery per audit was something north of $494,000.

While many of these investigations dealt with health and welfare plans, the threat that a retirement plan can be audited and subject to some sort of financial recovery should not be discounted. The likelihood that the DOL will increase their audits because of fee disclosure is likely.

People like James Holland and I didn’t make this stuff up. The threats are real. The punishment that neglectful plan sponsors receive is real. With a 72% chance that you have to chalk up some dough after a DOL audit, is it really worthwhile for plan sponsors not to take their job seriously? Just ask the DOL who made over a billion in recoveries.

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

My latest JDSupra.com article can be found here.

Unless you have been living in a cave for the past week, the Supreme Court struck down the Defense of Marriage Act (DOMA) unconstitutional.

DOMA restricted recognition and benefits for same sex marriages, which the definition of marriage having been a state matter.

For those in the retirement plan industry, the issues are significant because spouses are entitled to benefits and option that non-spouses are entitled to. Regardless of your view on the matter, the significance of DOMA being struck down is that same sex spouses will be due the benefits and rights that other spouses have enjoyed for years.

While defined benefit plans offer that joint and survivor annuity option, the most significant change is spousal consent, where spouses must consent for the plan participant to designate anyone other than the spouse as a beneficiary. This is significant because that means that the beneficiary forms for participants who have same sex marriages are completely out of date.

While I will not bore you with the many changes that the striking down of DOMA will have on retirement plans before any guidance by the Internal Revenue Service, I will suggest that this is a great time to review the beneficiary forms of all participants, whether they have same sex marriages or not. There are too many headaches that plan sponsors and their plan providers have when it comes to paying beneficiaries after the death of a participant.

Consider asking your plan participants to review their forms and make any corrections (especially with new marriages and those who have same sex spouses) so that the form is up to date. Every Spring, they talk about Spring cleaning. Let this striking down of DOMA also be a Spring cleaning of out of date beneficiary forms.

My latest newsletter can be found here.

My latest JDSupra.com article can be found here.

While it’s certainly made me some shekels and drachmas, I truly appreciate my readers. They put up with a lot of stories about Caddyshack, Crystal Pepsi, and my disdain for a managing attorney named Lois and her sidekick Fred.

I am overwhelmed that I have been nominated as one of the Top 100 Most Influential People In Defined Contribution on 401kwire.com. I am not big on beginning, but I would appreciate your support and vote.

You must register to vote and don’t have to be a subscriber.

To register and vote, visit here. I am listed under thinkers.

I was traveling back home on the Long Island Railroad and noticed a law firm associate trying to remember what he did for the day, filling out his timesheet. You could see the pain on his face and how he combed through his phone to remember what he did for the day and how many billable hours he worked.

There has to be a better way to bill for a living, but the law firm structure is based on the billable hour to support its bloated overhead even it does more harm to their clients.

When I started my own law practice, my goal was to move away from the billable hour because I thought and still think that clients want to know bottom line how much my work is going to cost them and not have sticker shock when they see my bill at the end of the month. Since I didn’t have a large overhead, a flat fee for me was the best place to go especially since my legal work working for third party administrators was a flat fee.

For many plan providers especially financial advisors, remuneration was based on assets. Registered investment advisors would get paid their flat level and the broker would usually resort to the different trails that mutual funds pay.  Is there a better way to be paid?

A lot of advisors are pushing for a flat fee or other alternative arrangements such as a per participant charge.

For the provider offering it, their flat fee must be an accurate assessment of their work with a profit margin or they’ll cut their throats. A lot of thinking and math has to go into quantify a flat fee when the advisor has always charged an asset based fee. For the plan sponsors, a flat fee is a great fee to digest and understand, but they have to be wary whether they are actually paying more than the advisor charging that old asset based fee. It can be a double-edged sword for everyone involved if one or more parties aren’t careful.

While I charge a flat fee, I’d be hard pressed to find a law firm attorney (not a TPA attorney who has no attorney-client relationship) who charges less (especially by the billable hour), but all plan sponsors have a duty to determine whether my fees are reasonable too. Plan sponsors can’t take my word for it, their fiduciary duty depends on them not.

I live in Oceanside, New York, an unincorporated village on the South Shore of Nassau County, Long Island. Hurricane Sandy pummeled Oceanside including my home. I had 5 feet of water in the house and both cars were destroyed.

For some reason, which has never been explained, Oceanside Sanitation did not come back for several weeks to pick up the trash. For some reason that has also never been explained, Oceanside has a Sanitation District separate from the town that it is run like its own little fiefdom.

Garbage was piling up and there were rumors that Sanitation workers were pulled off the street after several of them were accepting bribes from other residents. To this day, I still don’t know whether those rumors are true or not. The Town of Hempstead eventually bailed out Oceanside Sanitation by sending their garbage trucks and working with them to hire a debris removal company. Again, there was no explanation why Oceanside Sanitation was missing in action during this time of crisis.

A few weeks back, we had a rarely contested election for one of the Sanitation District commissioner positions. The incumbent, 7 months after Sandy, was offering excuses why Oceanside Sanitation was unable to remove the debris. Instead of accepting some responsibility for the loss of leadership, he pointed to the awards that Oceanside Sanitation received from the school district from the clean up and he claimed that residents impacted by Sandy were unreasonable to expect the District to clear the debris. He then congratulated himself on the job that he did after the Hurricane. Some politicians endorsed the incumbent because he was part of the same political party, but there was no reason as to why he should be re-elected.

I don’t think I have been as mad about an election in my life and 1,200 other Oceanside residents were also angry enough to vote and the incumbent was crushed. Does he get our anger now? Probably not, he’s just too arrogant. Had he wanted to keep his position, he should have started campaigning after the storm and offer a reason why the District failed us. His problem is that he didn’t think we had a right to know until it was too late. Until as recent as the election, the Sanitation District had no website and the website they did set up wouldn’t even name the Sanitation Commissioners.

Retirement plan providers can never be arrogant when it comes to the gripes raised by their clients. If clients have an issue with your service, you can’t discount because anger festers and boils over into an irreversible cycle that gets you fired. If something goes wrong, you have to offer an explanation why and you just can’t come up with an excuse when it’s convenient for you. You need to be hands on and nip problems in the bud. Clients have a right to know why something goes wrong and you can’t just offer an explanation when it’s time for the client to renew their service agreement with you or pay your bill.

For every relationship that went sour in my life, the reason 100% of the time was a lack of communication. Whether it’s one side or both sides, the lack of communication festered into an anger that irreparably damaged the relationship. A retirement plan provider can’t afford to be arrogant because there are dozens of other competing providers ready to replace you.

Constant communication is one of the great tools that a retirement plan provider can have in preserving their relationship with their clients, so it’s key that you are in frequent communication and never take advantage of their business, their trust, and their goodwill. Otherwise, you may be out of a job like the Oceanside Sanitation District Commissioner.

As you may be aware, I helped start a separate ERISA §3(16) fiduciary service and the reason I did was because I thought there was a need for a 3(16) administration service that was not connected to any third party administrator (TPA) and give plan sponsors the choice to hire a separate fiduciary who was not tied to any TPA especially if that plan sponsor’s TPA didn’t offer that service.

In addition, it allows the TPA who have no interest in offering the service on their own to refer work to someone who isn’t a competitor for their own TPA services.

So the 3(16) service is completely separate from my law practice and will eventually be staffed with its own personnel. Any questions, let me know.