The Rosenbaum Law Firm P.C. Blog

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

My latest JDSupra.com article can be found here.

I have been practicing in the employee benefits world for 13 years and the beauty of it is that you learn something new every day. The laws and regulations change, attitudes change, and the business is constantly in a state of flux.

Sometimes I am amazed by what I see and some of those things are from first hand experience. The only thing that I always know about being in this business is that since it’s so tightly knit and people know everyone, your reputation is more important than anything.

This business requires a lot of trust and a lot of faith. Whether it’s working with other professionals or whether it’s using a plan custodian or third party administrator to handle your money, trust is also an important tool.

We can all talk about fees, how some business operate, and whether a bundled product is a good idea for a 401(k) plan, but your reputation means everything.

I remember working for a fellow who was in this business for 25 years. While he might have been miserable person to work for, he built a large retirement plan business from nothing. How he built is up for debate, but he had a reputation as being very successful in the retirement plan business. After I left, a few years later, he had to retire in disgrace because of the way he conducted his business and the indisputable fact that he had a non- independent relationship with the auditing firm he referred his audit eligible retirement plan clients to. So in an instant of greed, a reputation was lost. A reputation that will not be repaired as long as the Department of Labor is still investigating jim, Despite the way he may have wowed some clients and wowed some business partners, he is a ruined man in the business because he put greed in front of his clients.

We can all debate our views in any forum we choose, but if we have a reputation in this business for cheating clients or doing something improper, we are going to have that scarlet letter in the retirement plan business and you learn very hard that people never forget a poor reputation in this business.

Some employees at Ameriprise, one of the larger financial planning firms is being sued for offering their own proprietary funds within their 401(k) plan. While the case is a class action lawsuit and the employees are being represented by a top ERISA litigator who has a penchant for these cases, it shows you that even people who are in the business of selling 401(k) plans can often neglect liability threats to their 401(k) plan.

I worked at a third party administration firm that switched its 401(k) plan from Fidelity to an insurance company based platform, just so they would save their premier pricing on that platform.

I worked for a law firm with ERISA partners that had a $25 million 401(k) plan with no financial advisor, no employee education, no investment policy statement, and no change of investment options in 8 years.

So while I emphasize how plan sponsors should minimize their liabilities, those in the business who should know better, don’t take care of their own plans. Sort of like the shoemaker’s children who have no shoes.

You know something has really caught on publicly when a large company adopts it or starts offering it.

Greek style yogurt has been growing in sales for the past couple of years with Chobani and several other Greek yogurt labels dominating the market. Now Yoplait and some of the other larger brands have started to offer Greek style Yogurt. The same thing is happening with Gluten free products for those with Celiac disease, autism, or those who want to live Gluten free.  While Gluten free products used to be hard to come by, Kellogg’s introduced Gluten Free Rice Krispies.

The same thing is with fiduciary services. There has been a proliferation of registered investment advisors serving as an ERISA §3(21) or 3(38) fiduciary.

So now many of the insurance company providers and now a payroll provider third party administrator are offering fiduciary services. Notice I said fiduciary services, which is different from an ERISA fiduciary. Some providers have been using fiduciary warranties which offer very little fiduciary liability help for plan sponsors and does not mean the provider is serving as a fiduciary. Just in the past 24-48 hours, a payroll provider is offering fiduciary services to their clients using an outside company. Is that company willing to serve as an independent fiduciary? I don’t know, I didn’t see it in the press release.

Regardless, a plan sponsor would be wise to see what is being offered with these fiduciary services because it does not mean the same as ERISA fiduciary. You may need to hire an ERISA attorney to check the details (cough, cough). Juice drink is watered down juice, fiduciary services may be a watered down fiduciary with no liability protection. A word to the wise when shopping for an ERISA §3(21) and 3(38) fiduciary that you get what you are paying for and not some imitation.

JD Supra announced their most read articles for September 2011. For the fourth month in a row, I had the most read article. Thanks to all my readers.

My latest JDSupra.com article can be found here.

While I know my discussions about payroll provider and bundled third party administration firms (TPAs) have hit nerves (especially those that work for those firms). We can all debate whether there is a link between running payroll and running 401(k) plans or whether there is an inherent conflict of interest for a TPA that has it own investment advisory practice. I think the main important thing is that whatever TPA a plan sponsor selects, it should select a TPA that is competent in its services and charges a reasonable fee for the services they provide. It’s that simple.

So while I have been honest in my views about payroll provider TPAs, my only issue has been the way they operate in administering plans. So I don’t care whether the TPA is in the payroll business or the meat packing business, the most important thing is competent administration at a fee that plan sponsors can understand, that’s it.

Aon (proud sponsors of my Manchester United) and Financial Engines released a report on 401(k) participants and the use of financial help in their plan.  The study found that workers who used financial help between 2006 and 2010 experienced annual returns nearly 3 percent higher (292 basis points, net of fees) than those individuals managing their 401(k) accounts on their own. They also found that the Sun will rise tomorrow and 3 out of 4 401(k) plan participants make 75% of the participants.

Seriously, it should be no surprise that plan participants that received professional investment help (defined as either using target date funds, using managed accounts, or receiving online advice) would do better than participants that didn’t. While some would scoff that the difference is only 3%, that 3% is annual and 3% annually over 20 to 40 years is quite a bit of shekels and dollars

So while it is certainly a positive development that those who get help do better, it should be noted that only 30% of plan participants use the help offered in their plan. So 70% of plan participants go it alone.

In addition, the survey was only using data in eight large employer-sponsored defined contribution plans, representing more than 400,000 individual participants with $25 billion in plan assets. Since these were larger plans, it was stand to reason that these plans offered some sort of financial help. However, there are too many medium sized and small plans that don’t offer any financial help or even have a financial advisor on the plan. So while the survey proves what most of us in the retirement plan industry always believe, we have a long way to go in delivering financial help and education to 401(k) participants who really need it.

My comments on Safe Harbor 401(k) plans are included in a Business News Daily article, which can be found here.