The Rosenbaum Law Firm P.C. Blog

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My latest JDSupra.com article can be found here.

My latest newsletter can be found here.

Khan: Kirk? You’re still alive, my old friend?
Kirk: Still, “old friend!” You’ve managed to kill everyone else, but like a poor marksman, you keep missing the target!

Like Khan Noonien Singh’s faulty aim, the Department of Labor (DOL) seems to have a faulty aim in trying to kill off the legality of multiple employer plans (MEPs) that are considered open, meaning it does involve belong to a trade group, PEO, or association. Of course, if you believe the DOL wants to kill off Open MEPs.

I am a firm believer in Open MEPs. If done correctly, they can lower plan expenses, which lowers the participant’s expenses, limits plan sponsor’s liability, and opens up plan participation to employers who might not have considered a plan if they had to go out on their own. As my good friend Tom will point out, I have helped third party administrators (TPAs) work on MEPS, as well as starting one on my own.

So while I’m certainly biased, those tooting the horn against Open MEPs tend to biased as well. While there are some that have no allegiance, some Open MEP critics are those that feel very threatened by them, namely some TPAs whose pricing would be threatened if they go head to head with TPAs offering a MEP solution as an alternative. Suppose you are a TPA whose bread and butter is cash balance plans and you charge $5,000 a plan document and $5,000 to $10,000 in administration, of course your business is threatened if someone offers a MEP where an employer joins for a fraction of that administrative expense. That being said, most everyone on either side of the argument has a bias and financial interest.

That being said, common sense should never lose out. The DOL is a governmental agency, so this is 2012, a political year (which year isn’t?). Does anyone think the Obama administration will kill off a plan that can offer on its best day, lower plan expenses, lower fiduciary liability, and more professional plan management? So when a certain ERISA attorney made claims that the DOL was cracking down on Open MEPs based on a comment made by a DOL official at a benefits conference, a lot of rumors, lies, and innuendoes were spread.

The DOL was looking at MEPs in terms of the plan sponsors. Did they meet the definition of the employer for purposes of ERISA, or where they offshoots of the service providers that can create a whole host of prohibited transaction rules? Are the plan sponsors being compensated from plan assets in excess of actual plan expenses? Thanks to a lack of developing some 36 year old rules set forth by the Internal Revenue Service, the Open MEP space delved into the Wild West and we needed some law and order. In those great Westerns, the Sheriff went after the folks with the black hats, not after the folks with the white hats, or the guy owning the general goods store. In the Western envisioned by an Open MEP critic, the Sherriff kills off the entire town including the women and children.

In the very recent Department of Labor ruling 2012-04A, the DOL took on a MEP or at least a MEP sponsor. It held that since the plan sponsor wasn’t a proper employer for ERISA and there was no commonality between the adopting employers (such as the association, trade group, “closed MEP”), then it wouldn’t be considered a single employer plan for ERISA which means every adopting employer of this MEP is going to need a 5500. Since it wasn’t an employer and had no commonality, then it was no good which means that an employer can maintain a MEP that has no commonality.

I am not going to bore you to death with the nuances here, but if the DOL wanted to kill off Open MEPs here, they could have, but they didn’t. They killed off one (or seriously wounded one) which had structures that were problematic, the plan sponsor was just an offshoot of the registered investment advisor, the RIA was the 3(16) administrator, and the plan fees from assets were high.

The DOL gave a blueprint to operate an Open MEP, or something resembling a blueprint. So if you get an email from someone killing off Open MEPs again, it’s alive. Just like Admiral Kirk, well at least in Wrath of Khan.

My latest JDSupra.com article can be found here.

I believe in the idea of open multiple employer plans (MEPs) because when done correctly, it can serve as a cost effective solution for many (not all) smaller plans that might have been forced to pay higher fees if they were not aggregated with other, unrelated employers.  Not only have I worked on these MEPs with third party administrators and spoken about them, I actually started one on my own.

For the past year, open MEPs, where there is no commonality among employers (unlike a closed MEP where it’s only open to members of an association or group), there has been much concern that the Department of Labor (DOL) has looked unfavorably on open MEPs. Open MEPs are allowed under the Internal Revenue Code and under the Treasury Regulations, so I suppose that if the DOL has an issue with them, they will have to get the law changed.

Whether the DOL will help kill off Open MEPs or add much needed guidance on how they can be structured, that is open for debate. If there are folks out there who believe that MEPs need commonality and the DOL will put Open MEPs out of business, that’s their opinion and I respect that. I have no qualms for those with different viewpoints, but I take issue is when people exaggerate and mischaracterize the debate.

At issue recently was the certain case of an Idaho fiduciary who has been accused of stealing $5 million from two Open MEPS. Unfortunately, I am indirectly involved in this matter, having succeeded this fiduciary on another MEP. He is currently under indictment where the Department of Justice claims that the Open MEPs qualify as a single employer plan. He is also being sued by the DOL to recover the money that he has been accused of stealing. In a request for a restraining order to have this fiduciary removed as the chief fiduciary of one of these MEPs, a staff attorney at the DOL (I believe from the Seattle EBSA office) drafted a memorandum where she claims that the Open MEP in question is not a single employer plan, because there was no commonality among the adopting employers.  Instead, the DOL argues that the MEP represents separate plans, with each plan belonging to an adopting employer of the MEP.

What does it mean? For the detractors of Open MEPs, it’s further view that the DOL has issues with Open MEPs. For someone who supports Open MEPs, the view contradicts current law and may not be indicative of the DOL’s position since this was drafted by a staff attorney in Seattle who is conjuring legal arguments to support a restraining order to enjoin this fiduciary to continue the control of this MEP. If we want to remove some as the fiduciary of a MEP, doesn’t it sound better to say he represents 25 plans (adopting employers) than just one old MEP? Perhaps.

What it means is open for debate, nothing wrong with that. What bothers me is the absolute propaganda that certain detractors of MEPs have propogated.

A few days ago, an advisor I know forwarded me an e-mail that a certain third party administrator forwarded to a well known member of the retirement plan community, who then forwarded to a network of advisors and brokers he knew.

In part of the e-mail, the representative of this TPA stated:  “the DOL ruled unfavorably yesterday on the on the Hutchinson (sic) open DC MEP and went out of their way to point out that the plan’s adopting employers had no commonality. The attorneys and DOL and IRS agents here pointed out that by going out of their way in this ruling to point out this fact suggests they do not support open MEPs.”

While this memorandum in support of a restraining order in a civil case may represent the DOL’s thinking, it’s an argument in support of a restraining order. If the judge grants  the order, perhaps the judge buys the DOL’s argument, perhaps the judge grants it regardless. Whatever the DOL’s view is, it’s not a ruling and the author of that e-mail who graduated from law school should have known better to make a view in a civil matter to be anything more than what it is, a legal argument. The DOL made a memorandum, it did not make a ruling because as a litigant, it can’t, that’s up to the Judge. What should also be noted is that the TPA does some work in the cash balance area. As you may recall, for many years, the Internal Revenue Service stated that cash balance plans should not be allowed because they are discriminatory. Well, who supports cash balance plans now? The IRS. Did this TPA stop drafting and administering cash balance plans during the era of the IRS’ discontent. Probably not, because they believe what they were doing was within the limits of the law. Sound familiar? Sounds like a TPA wants to kill off Open MEPs to protect its space. Maybe a cash balance or 401(k) Open MEP threatens them? That’s for another day.

Many advisors might have read this forwarded e-mail and believe this propaganda. It’s misinformation because a legal argument is not a ruling and is not binding on anyone interested in or belongs to a MEP.

What does it mean? Not a whole lot. We are where we were a year ago, in a state of flux when it comes to Open MEPs. Open MEPs are still alive, the DOL did nothing except make an argument in a case in lovely Idaho. To be continued….

I talk to a lot of advisors and I have many advisor clients around the country and one of the things that I keep on hearing is that even with fee disclosure on the horizon, it is still difficult to get through to plan sponsors about their fiduciary responsibility as plan sponsors.

Having been a pessimist for a good chunk of my life, I see things now as the glass being half full. That means over the past several years, plan sponsors are more educated as a whole when it comes to plan expenses and fiduciary responsibility. Companies like Brightscope have done a good job of bringing fee benchmarking and disclosure to the forefront for plan sponsors to understand why they need to care about fees and their investment options. The proliferation in the hiring of outside ERISA fiduciaries also proves that point.

So while many plan sponsors now “get it” when it comes to fiduciary responsibility, there will always be that group that don’t. They say they cover all their bases and how they are in good hands with their current providers even though they made absolutely no fee benchmarking or due diligence. They say that big participant lawsuits like Tibble and Tussey don’t matter to them because there plans are small. I learned a long time ago that there are probably still folks out there that think the earth is flat and there is no use in getting aggravated because their time will come when they see that light. There is no guarantee they will see the light, but these plan sponsors will only understand it when they get sued by their plan participants or when the Department of Labor starts auditing them and figuring out what they did with their fee disclosure and whether they documented their fiduciary process. Some people will never get it until some type of plan litigation goes against them or someone they know.

Fee disclosure will have greater effect when the DOL starts auditing plans and service providers because fee disclosure regulation without any teeth is useless. Making plan sponsors suffer the consequences of a prohibited transaction for not complying with the fee disclosure regulations will awaken the stubborn plan sponsors who shrug off their fiduciary responsibility.

My great grandmother said it best, don’t run after the carriage if it’s not going to pick you up which means that if you are a plan provider, that don’t bother with the plan sponsors who listen to your proposition concerning fiduciary responsibility and shrug their soldiers and give the old Alfred E. Neuman :what me worry?” line. If there is any luck, they will get it when it’s too late.

I was featured in a recent Benefitspro.com article, please click here.

My latest JDSupra article can be found here.

I was at the enrollment meeting on Tuesday morning for the very first participating employer for my multiple employer plan (MEP) (yes, cheap plug here).

The enrollment meeting was a little refreshing because it was an employer where the human resources staff understood their role in how to manage their responsibilities and it’s not about joining my MEP. The reason why it was refreshing because the HR staff understood that if you take care of the small things in managing your plan, you could avoid the larger harm later.

The enrollment meetings were made with mandatory attendance by the participants. After the last meeting was concluded, as the MEP plan sponsor, I asked for a copy of the attendance sheets as well as the education materials so I would have a record of them. The HR one upped me by saying she was already going to make a copy because she attended one of my previous seminars about fiduciary responsibility (so I’m glad one person is listening to me).

What I’m trying to get across is that if a plan sponsor takes care of the small things, it can avoid a great deal of trouble later. So that means keeping the attendance sheets from the enrollment meetings and keeping copies of the education materials. That means keeping good records of any trustee meetings and any meetings with the plan’s financial advisor. That means making sure having an investment policy statement (IPS) and having the funds checked against the IPS every six months or so.

Taking care of the little things of a plan sponsor is like brushing your teeth and flossing. It’s preventative care to avoid decay later. Good fiduciary practices can be tedious at times, but being deposed during litigation brought by an aggrieved participant or getting heat from the IRS or the Department of Labor is far more work.

Even if the plan sponsor isn’t keen on doing the little things, then they should hire an ERISA §3(38) fiduciary or a §3(16) administrator to handle some of that role. So the difficult part really for a plan fiduciary is not doing the job, it’s actually knowing you have to do the job.