The Rosenbaum Law Firm P.C. Blog

My latest JDSupra.com article can be found here.

Human resources directors and plan sponsors need to know the dangers with setting up a retirement plan and how with some effort, avoid turning their retirement plan into a human resources director.

A good chunk of my practice is helping human resources directors and plan sponsors around the country avoid the headaches of being plan fiduciairies at a flat, reasonable fee.

That is why I’m proud to work with HR.com on a webcast called How a Plan Sponsor Can Avoid Turning Their Retirement Plan Turn into a H.R. Disaster on July 10, 2013 at noon.

For further details how to sign up, click here.

I talk about my 2 year sentence at a semi-prestigious law firm (sorry, Lois) more than I should, but I do because it was probably the most frustrating experience in my life and I went to law school and passed 3 different state bar examinations.

What was frustrating was trying to create a national ERISA practice at this law firm and I got ignored for my ambition. I tried to make introductions of financial advisors to the law firm partners, gave some of them U.S. Open tickets, and got some of them free meals in order to allow me to get retirement plan clients and cross selling our legal services to financial advisors around the country. It’s frustrating when you know that you can be successful, but they try to impede that potential success. I am the type of person to brag, but I enjoy rubbing my success over the past couple of years in their face. I know it’s wrong, but it’s a validation over something I knew I could do 5 years ago.

One of the sticks in the wheels of progress at the firm was the law firm administrator. He tried to pawn himself as some sort of Chief Operating Officer, but all I ever found to be was a spy for the managing attorney. I remember him asking me to not bother with sending a draft letter to my old third party administration clients to the managing attorney, that he would work on it with me so it would be presentable to the managing attorney. Of course, he betrayed that trust by just submitting that draft to the managing attorney. I had to hear from the managing attorney how awful my engagement letter was. What was the point of what he did? 5 years later, I still wonder.

Instead of helping grow the law firm’s practice and not following up on the promise to help my practice, this law firm administrator would use law firm resources to draft articles on law firm administration. It would take my articles 3-6 months to be published by our marketing department because they were clogged with his articles that would never draw a dime for the law firm, but were use to boost his ego and standing among other law firm administrators. The articles were about how law firms can help with billing, associate development, flat fee billing, and all bunch of other theories that law firm administrators would salivate over.

It’s funny that ever since I pointed out this misuse of law firm resources a few years ago, the nonsensical article output of this law firm administrator has declined to about zero.  Sorry, Fred.

The problem was that this law firm administrator would write about these topics, but did very little in implementing these ideas. It’s great to talk about how to improve a law firm’s efficiency and bottom line, but it’s worth nothing if you don’t actually implement on your end. It’s great to talk about developing your associates, but it doesn’t mean anything when you ignore them after you claim you will help them.

The same goes with retirement plan providers. It’s great to talk about fiduciary responsibility and how you help plan sponsor clients manage their plan, but it doesn’t mean anything if you don’t actually help them out.

Who can forget that famous fiduciary who testified in Congress and on Frontline about fiduciary responsibility, but was convicted of embezzling retirement plan assets of plan participants he was hired to protect? Plan providers can create an image for themselves about their professionalism and effectiveness in helping plan sponsors, but they need to actually implement that image in their work and their deeds.

Talking about how you help manage the fiduciary process or help facilitate plan administration means nothing if you don’t do the job. If you’re hired to be a plan provider based on your talk, you are going to have to walk the walk because failing to live up to the promises you made will make you lose clients and increase your liability exposure whether you serve in a fiduciary role or not.

Heck, I wrote lots of blogs and lots of articles, what would my practice be if I overcharged clients for legal services I didn’t provide?

Whether you are a financial advisor, third party administrator, auditor, or even a law firm administrator, you need to walk the walk if you talk the talk.

I had the pleasure of offering some comments to my friends at FiduciaryNews.com about one of my favorite subjects, participant directed brokerage accounts in 401(k) plans.

Choice can be a good thing with a 401(k) Plan, but too many choices aren’t  a good thing. The problem I find with brokerage accounts is three fold.

1)   Plan sponsors actually need to vet brokerage account providers, as well as providing investment education and/or advice to those who partake in these accounts. I don’t think any hold harmless agreements by a plan participant who invests in these account will do any good because a plan sponsor has a fiduciary duty to all plan assets. It also doesn’t help that plan participants who use brokerage accounts do worse than participants who use the plan’s core fund lineup.

2)   While most of these firms who offer brokerage accounts are professional services organizations, many tend not to offer it to all participants (which can bring up plan discrimination as it pertains to benefits, rights, or discrimination). I once belonged to a 401(k) plan where the partners had brokerage account, but associates and staff weren’t given that option.

3)   Whether it’s through litigation or regulation, I think there is a lot of unsettling fiduciary liability issues that may come up further down the pike where plan sponsors will regret offering brokerage accounts.

Just my two cents and my bias against participant directed brokerage accounts within 401(k) plans.

My latest JDSupra.com article can be found here.

So much of any industry is dedicated to marketing, because marketing can help a company sell a product or service just based on how it’s marketed. Whoever sold the pet rock is still probably laughing all the way to the bank.

In the retirement plan industry, there are quite a few marketers who can take a normal product or service that most providers offer, but make it sound more important than it really is. Sort of like Big Mac’s special sauce, which we all know to be Russian Dressing.

I remember a few years back of a third party administrator that I work with who developed this special professional services pension plan which was geared towards professional service companies that offered a pension with participant direction. All it really was, was a cash balance plan with participant direction (before PPA 2006 made participant direction in a cash balance plan impossible).

Look at the folks who offer fiduciary warranties where the provider neither serves as a fiduciary nor offers a warranty that will ever be used. As a friend of mine pointed out, the insurance providers who offers these warranties make money by insuring risk, so what does it say about those fiduciary warranties if they are free?

I can’t wait for the ERISA 3(16) or 3(38) fiduciary to call themselves a retirement plan concierge or butler to make what they do sound better for the masses.

The point is that as a retirement plan sponsor to make sure what you are getting in plan services, because a euphemism is a euphemism and that doesn’t protect you more than what contractually is being offered.

With every positive development in the retirement services industry, there is always going to be a few jokers who will take advantage of the situation to the detriment of the plan sponsors clients they are supposed to help.

Concern about fiduciary responsibility have led to certain providers in offering 401(k) fiduciary warranties where they don’t serve as fiduciaries nor do they warranty against anything you are likely to get sued on.

The proliferation of financial advisors serving as ERISA 3(21) fiduciaries and ERISA 3(38) investment managers have ked to many inexperienced or high priced providers in the space who take out a chunk of their responsibility and liability in their provider contracts. I had heard of an ERISA 3(38) investment manager calling them a limited scope 3(38) fiduciary that makes absolutely no sense when an ERISA 3(38) investment manager has discretionary control and by the nature of that control, must bear the responsibility and liability that goes with it.

The same can be said with ERISA 3(16) administrators. There are a few third party administrators (TPA) willing to offer that service and several TPAs who don’t see the value of that service. The value of the service like anything in this business is all about reasonableness, are the fees reasonable for the services provided. Someone remarked about an ERISA 3(16) administrator charging 45 basis points for their services. That’s a lot of money for something that doesn’t seem worth it. There is no reason an ERISA 3(16) administrator should make more than a TPA or more than what most ERISA 3(38) investment managers charge. I understand that there is liability that goes with be a 3(16), but the TPA and the investment manager do the bulk of the work and the purpose of a 3(16) is to assume the plan sponsor’s monitoring of these providers. Should the guard at the bank make more money that the bank manager? No, nor should the retirement plan guard (the 3(16)) make more than the folks who do the bulk of the work.

Since there are many TPAs not willing to offer the 3(16) service because they don’t see the value or the profit margin, a couple of my friends that I worked with in the TPA space a few years back and myself are considering developing an ERISA 3(16) service that does absolutely no TPA work or any investment advisory work.  The 3(16) service would be a standalone service that these TPAs who want no part of the 3(16) business can refer plan sponsors to, so they can maintain a competitive balance by recommending a 3(16) service totally independent from their role as TPA. Fees will probably be a few basis points (less than 10) or a per head charge (depending on the plan sponsor’s needs). Any interest, you know where to reach me.

As with any retirement plan service, a plan provider needs to find the good ones from the bad ones. It’s often difficult, but diligence in their fiduciary duty will let the plan sponsor make the right choice.

In my previous life (long story), I had a brother in law.  Yes, one of those. Despite similar interests, we were never friendly mainly because he had the personality approach that he didn’t care for anyone else. He wasn’t shy with his relatives; he just didn’t care for most of mine. When he was dating my sister, I had tax preparation service where I drafted income tax returns for a flat fee of $150 (it wasn’t very successful).

My sister wanted to use my tax software to complete my brother in law’s (he was the boyfriend at the time) taxes. I said that she could prepare the return as self prepared, but there was no way that I would sign the tax return. I felt the fact that he could use my tax software for free was enough; I didn’t have to sign it for it to be filed.

My point of refusing to sign the return was unpopular, but felt that it had to be taken. My view is that my time and work is valuable and if you give you something for free, it really has no value to the one receiving that free service because they feel that it’s not worth anything if they get it for free. Free services is not the same as getting a free IPad for signing up with a cable provider because people can assign a value to an IPad and have no idea the value of a service.

So when I hear plan providers giving away free services such as a free investment lineup review, I have a lot of fear that these providers are giving away something of value to plan sponsors who don’t think it has any value. A financial advisor giving away a fiduciary analysis to a potential client plan sponsor probably finds a lot of time that they gave away something for free when that plan sponsor retains their current advisor.

Believe me, I know. As you know, I do a plan review called the Retirement Plan Tune-Up for $750. While I think the price can’t be beat for the level of review, I have not made as many of these reviews as I think the markets warrants it. A year or so ago, I was contacted by a Northeast registered investment advisor who suggested we could team up on these reviews to his current or prospective clients. He asked if I could do a Plan Tune-Up for a prospective client with this first review being on the house. I did it for free and it’s been about a year and a month since I have heard from him. I gave away something of value for free and got the short end of the stick. Needless to say, that was the first and last of the free Retirement Plan Tune-Ups.

So my two cents is that any service you’re interested in giving it away for free, ask for some remuneration even if it’s negligible because it at least demonstrates to the plan sponsor that it has some value and therefore, can’t be chucked away as yesterday’s garbage.

My latest JDSupra.com article can be found here.

After Hurricane Sandy decimated our house with five feet of water downstairs, we needed to replace our hot water heater and furnace. Our plumber got us a new hot water heater, but couldn’t find a new furnace. A neighbor had a friend who was an HVAC contractor in Rockland County who could get us a furnace. This contractor claimed that his Rockland County HVAC license allowed him to work in Nassau County because they didn’t license these types of contractors. Since the goal was to get back in the house as quickly as possible, we hired him based on his word.

After this HVAC contractor stiffed us out of the air conditioner condenser as contracted, we discovered that his contractor lied.  He needed a license out here and all the work he did out in our neighborhood was illegal. Had he been licensed in Nassau County, getting the money back for the condenser wouldn’t require a small claims action.

Not hiring a licensed contractor is our poor luck and we bear the burden of that.

When you’re a retirement plan sponsor, you don’t have the luxury of lamenting about that mistake, you’re on the hook for hiring professionals who lie about their credentials because you had a fiduciary duty to check them out. If you hire a TPA who lied about their experience or a financial advisor who isn’t registered, well you’re on the hook for breaching your fiduciary liability.

The rational person in me never understand why any professional would like about their academic and professional achievements, but the rational part of me understands because so few people bother to check it out.

That’s why this industry had someone who claimed he was an independent fiduciary because he told us he was one. This fellow built a name for himself; did a heck of lot of promotion, but this fiduciary had “no clothes”. His claims about his experience were either exaggerated or fraudulent.  He probably was able to get away with a lot of his crimes for so long because no one (except for a few reporters) was able to expose his inflated and fraudulent credentials. Unfortunately for many plan participants, that came too little, too late.

I am an ERISA attorney for almost 15 years, admitted to practice in New York, but don’t take my word for it, check it here.  Even if you hire me because of my no nonsense flat fee approach to retirement plan law, you should check it out.