The Rosenbaum Law Firm P.C. Blog

These days, all I hear is multiple employer plans (MEPs) all the time. Whether it’s the third party administrator (TPA) who wants to offer it or the financial advisors who want to offer it, I usually average one MEP question a day.

Many MEP critics exaggerate the dangers of MEPs and many MEP supporters exaggerate their benefits.  I am in the middle, still trying to tell it like it is (at least in my mind).

MEPs to me are supposed to allow smaller plans of unrelated employers to group together to save money on administration and limit some of their fiduciary liability.  To me, MEPs are supposed to offer smaller plans a better plan at a better price, at least in theory. However, MEPs do suffer the very same problems that small plans do. They can have compliance issues that can threaten its tax exempt status and most importantly, they can be very costly.

Like anything else, you have good MEP providers and bad ones. A plan sponsor interested in joining one shouldn’t let the hype overcome good judgment and determine whether the fees and features of the MEP they are considering are right for them  because joining the MEP of a costly or incompetent MEP provider defeats the purpose of joining the MEP.

I’ll say it a million times and I will say it again: there is something to be said about finding a  good third party administrator (TPA) to handle your plan.

I came across a 401(k) plan recently where there was a change of plan administrators at the very same TPA and the news administrators explained that there were several problems with the plan. The first problem was the fault of the plan sponsors by overfunding the safe harbor matching contributions since the sponsor didn’t cap employees’ salary at $245,000 (for 2011). That’s OK since a TPA may not find this error until they do the end of year compliance.

The other issue was a little more problematic. There were outstanding loans in the Plan, the kind of bad loan variety as the participants who took out the loans didn’t make a principal repayment for 5 years. These loans should have been defaulted about 4 ¾ years ago. The TPA’s contention is that they had asked the plan sponsor about the loans every now and then and never heard back. This isn’t about asking for the DVD you loaned your friend, this is about a transaction that threatens the tax qualification of a retirement plan and one of the TPA’s main jobs is to help administer the plan in a way to maintain its tax qualification. To think this went on for 4 years until a competent administrator started to handle the plan is both amazing and alarming.

Again, the difference between a good and bad TPA isn’t just competence, it’s about pro-active vs. re-active. It’s about asking the right questions and getting the right answers.

For my latest JDSupra article, please click here.

To be or not to be, that is the question. To delay or not to delay, I don’t know what the answer is.

With April 1 rolling around and no final rules concerning their implementation, many folks (namely retirement plan providers) are lobbying the Department of Labor to extend the enforcement of the fee disclosure regulations.

While a previous posting was my belief that the DOL shouldn’t delay the implementation of the regulations, my belief is that as each day that passes by, it is more likely that the DOL will delay.

So while I believe that plan providers should be ready for the April 1 date and don’t need to extend their complaints that they still aren’t ready for six months, the DOL deserves the blame for this mess.

Fee disclosure regulations have been on the board for almost 2 years now and it’s time the DOL to publish their final rules.  Otherwise, we will get a delay and those who care about fee disclosure (whether it’s a plan provider, plan sponsors, or participants) will lose.

My latest newsletter can be found here.

My latest article on JDSupra.com can be found here.

When I first started as an ERISA attorney in 1998, I was told that all retirement plans had to be restated by December 31, 1999. The Internal Revenue Service then kept on delaying the restatement process until 2003, almost 4 years later. When it comes to the retirement plan business, change takes time because the rules are set by the Federal Government who is not in the efficient or for profit lines of business.

Section 408(b)(2) regulations are supposed to go into effect on April 1, 2011, after a year and change of Department of Labor (DOL) delays. Right before New Years, the American Society of Pension Professionals and Actuaries (ASPPA) and the Council of Independent 401(k) Recordkeepers (CIKR) asked the DOL to push back the effective date for the new regulations. Both groups claim they are for fee disclosure. I hope it’s not the John Kerry, for fee disclosure before they were against it, but I certainly give them the benefit of the doubt because fighting fee disclosure is like fighting sunrise, they are both inevitable.

The push by these groups to extend the deadline makes sense on their end. Both groups are doing what any good trade group or unions do, representing the needs for their members. Truth be told, I was thrown off of the ASPPA LinkedIn group a few months back because there was a controversy that ASPPA was supporting multiple 403(b) vendors for the Los Angeles school district. There was much outrage, but my comments were that ASPPA does not represent the needs of teachers who should have lower cost 403(b) plans (which I believe you have when you only have 1 vendor)  and their efforts (like their nice conferences) are probably financially supported by these multiple 403(b) vendors. I guess my dose of reality was a bit too much for the organizers of that group. Oh well.

That being said, I have never been a big fan of these trade groups as I am not a member of any bar association because as Captain Kirk said in the underrated Star Trek III: “the needs of the one outweigh the needs of the many.” I believe the needs of the plan sponsors and participants outweigh the needs of the TPAs who have to comply with these regulations because over the last year or so, they should have been preparing for fee disclosure since its implementation was inevitable. There are quite a few TPAs that have prepared for fee disclosure and have been ready for it for some time.

Delaying the fee disclosure regulations won’t serve anyone’s purpose. Plan sponsors and participants won’t have the information to determine whether fees are reasonable, it punishes those providers who have already complied, and it only further pushes the inevitable to those that haven’t.  Fee disclosure will serve as a survival of the fittest for those that have embraced fee disclosure and those who haven’t. Further delay won’t help anyone. Let the games begin.

My latest newsletter can be found here.

My latest JDSupra.com article can be found here.

My experience at law school could probably be summed up by one event. For first year law students, there is an event that everyone participates in and it’s called Moot Court where students argue a fictional appellate case in front of second year law students acting as judges.  The whole idea is to get used to court room arguments and the fact that the judges will interrupt you at any point.

For Moot Court, I wore a Flintstones tie. At that time, at age 22, I had a very large collection of Nicole Miller and character theme ties. So when I participated in Moot Court, I was chastised more for my tie and less for my argument. I was told by these “Judges” who weren’t lawyers on how wearing a Flintstones tie was disrespectful to the court. So I was chastised for wearing a fake tie while arguing a fake case in a fake court.

So much of what law school is about and many law firms are all about is the fact so much of what is done is mainly done because it’s always been done that way. The way law school operates, well it was always done that way. The fact my law school didn’t have minus grades (A-, B-, etc.), well it was always done that way. The way my old law firm would bill or conduct themselves in advertising and client recruitment, well it was always done that way.

I guess I am the square peg in that round hole or the turd in the punch bowl because I would hear the same things in the retirement plan business. I remember being laughed at because I said that fee disclosure was inevitable (this was only in 2007) and that failing to disclose revenue sharing made a third party administrator look crooked even if they weren’t. I was told that this was the practice of TPAs and that this is the way it was always done. I had an argument with a 401(k) sales person because I thought our “producing” TPA should embrace and push automatic enrollment to increase participation and assets under management.

If we operate to the believe that things are always done that way, there would still be slavery in this country and computers would still be using punch cards and transistor tubes. Following the way things have always been deprives people of the opportunity to progress and to succeed. The most successful people in business have thrived by being game changers.  

With 2012 just here, the retirement plan industry is going through overdue and fundamental change and this is because it doesn’t have to be the way it’s always been. The retirement plan industry is progressing and is actually growing up (at least forced to by the Department of Labor) in leveling with plan sponsors and participants as to the true cost of plan administration. Many of the practices that were held up as being day to day business are being phased out and that is because there were individuals and entities (whether governmental or commercial) that spoke up and said that the practices of the retirement plan business of cloaked fees and potential conflicts of interests had to change because some of the behavior would be considered criminal in other industries (anyone hear of payola?).

I always believe to thrive in business, you need to find a niche and to always be ahead of the curve. When you are developing a new product or a new way to do business in the retirement plan industry, always remember that there are those who will laugh or condemn it because your product or service is not the way things have always been done. Ask the folks at Brightscope or TPAs that practiced fee disclosure years ago.

Change can be a good thing, a very good thing and no one who will succeed in this retirement plan business today by operating in this business as it still was 1995 when daily valued 401(k) plans was still considered in its infancy. Any reasonable society or business doesn’t stand pat, it progresses. So never let them tell you that you can’t do something just because it’s not what has always been done.