The Rosenbaum Law Firm P.C. Blog

There is nothing fun about getting fired by a client. It creates self doubt as to your aptitude in the services you provide and you always wonder how or why you can do things differently. When Davey Johnson was the manager of the Mets, he turned a losing team into a winner in one year and led them to a World Series two years later. After the 1986 championship, 1987 was a wash because of injuries and Doc Gooden’s cocaine problem. 1988 was a division title and a heartbreaking loss in the League Championship Series to the Dodgers (thank you, Mike Scioscia and Orel Hershiser). 1989, they won less than 90 games for the first time since 1983 and thanks to us unreasonable Mets fans, we asked for Davey’s head. Davey got a lot of criticism, but success will make you greedy. I’ll never forget when someone called into the sports radio channel, WFAN, and asked Davey “whether he was hired to be fired” meaning that there is always an end to a relationship and it usually it ends ugly.

While I don’t have Davey’s track record, I have been fired by a couple of clients in 12 years and most of the times, it was for the right reason. I was once fired by a plan sponsor that was going through a Department of Labor (DOL) audit of a trustee directed 401(k) plan. All of the plan’s assets were in one investment, a privately held company that was run by one of the relatives of the owner of the plan sponsor. When an unrelated, plan trustee was interviewed by the DOL, he claimed to have no knowledge of what the investment was.  The DOL agent reviewed the company and thought that it was some ponzi scheme or other suspicious investment (perhaps a prohibited transaction). I was working with the DOL agent and he agreed to drop his suspicions if I could get some backup as to the legitimacy of the business. I always cooperate with the DOL because when you avoid them or don’t cooperate, the power of subpoena and litigation is something I like to avoid.

I asked the client for the backup and they couldn’t get what I needed from the people running the company they invested in. Rather than cooperating with the agent investigating them and without contacting me, they supposedly went to the District Director who would look into the situation for them. Nothing came of it, but my services were no longer needed.  The purpose of hiring an ERISA attorney for them to represent them and the clients that let me handle the situation usually do better than those that don’t. I don’t know what ever happened to them, but a trustee who doesn’t know what they invested in is a breach of fiduciary duty, regardless of whether that company was the second coming of Berkshire Hathaway. So sometimes, you get fired for a good reason and the good reason was losing a client that wasn’t cooperating with me or the DOL.

I love these types of stories because they usually are comical. I will never forget a friend of mine who was a salesperson at a third party administrator (TPA). He lost this 401(k) client to a rival because the rival guaranteed that they would pass discrimination testing on salary deferrals, top heavy, and matching contributions. The problem was that the plan was not a safe harbor 401(k0 plan. The plan had no automatic enrollment and no qualified non-elective contributions. How could this rival TPA guarantee passing compliance tests? Your guess is as good as mine, but I have to figure something faked was going on.

I also remember an advisor that I worked with who was fired and re-hired by a client rather quickly. Why the quick turnaround? He was fired by a new Chief Financial Officer who brought in a new advisor. The problem? Well this new advisor was kicking back part of his fee back to this new CFO. Needless to say, this was discovered and both the CFO and the new advisor were out of jobs.

So the lesson to be learned is that getting fired isn’t fun, but sometimes it’s not your fault and you got fired for a good reason, that you were not as illegitimate as the providers hired to replace you.

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My latest article on JDSupra can be found here.

When I was 13 and I had my Bar Mitzvah, I plucked down about $2,000 in 1985 money for a state of the art Apple IIe with a monochrome monitor. One of the first pieces of software I bought was that top desktop publishing software known as Print Shop. I bought it through mail order (yes, there was life before Amazon.com) for about $30 and I remember that my wealthy uncle bought the very same program for my cousin for about $60. My uncle really thought nothing of the fact that he bought the very same program at double the price I paid. Sometimes people like to overpay.

I have a mantra that I hate to pay retail. I love a good sale. Yet there are some people who thumb their nose at paying at a discount or going to an outlet store. Somehow, it isn’t right for these people to pay less.

The problem is that plan fiduciaries such as plan sponsors and trustees don’t have that luxury. With their fiduciary duty on the line, plan sponsors need to pay reasonable plan expenses for the services involved. Plan fiduciaries can only determine whether the fees they pay are reasonable by shopping their plan to other service providers. If they don’t shop around and overpay in fees, they may subject themselves to liability from plan participants. It should be noted that plan sponsors don’t have to pick the cheapest providers because often, there is a reason why some providers are cheap.

How to determine whether a plan sponsor is pay way too much? Like Justice Potter Stewart would say, I know it when I see it. I have seen the information shown on Form 5500. Whether it’s the plan sponsor paying a Big 4 accounting firm $54,000 for a limited scope audit or another plan sponsor paying a broker 60 basis points (.60%) on a $14 million 401(k) plan, there are plan sponsors seriously overpaying for services. Fee disclosure will make it more apparent if plan sponsors are overpaying, but again, the only way to determine that is if plan sponsors survey the 401(k) marketplace to see what other plan sponsors are paying.

An article of mine has been reprinted on Financial Advisor Magazine’s website here.

Last week on this blog, I talked about why it may be a good idea to use an independent ERISA attorney for plan documents instead of relying on the attorney for the third party administration firm (TPA) or whoever is drafting plan documents for a bundled provider. I stressed the value of an attorney-client relationship and the fact that plan documents are legal documents with legal consequences.

Herbie Glass of Glass Retirement Strategies offered his take as the owner of a TPA. Mr. Glass stated that attorneys in his area can no longer afford to produce plan documents when brokerage houses are giving documents away from free and his TPA actually ghostwrites documents for law firms (which is funny, since I have ghostwritten documents for TPAs).  Mr. Glass also reiterated his experiences working with plan documents drafted by ERISA attorneys and how some of them don’t even bother finding how the plans where administered (for example, how discrimination testing was done ) before drafting them.  Mr. Glass also stated that he thought I probably know how to draft a good plan document, not because I’m attorney, but because of my TPA experience.

I really enjoyed Mr. Glass’ insight because though it may be a different view from mine, I couldn’t disagree with anything he said and I feel terrible that my previous comments were missing some really important elements. So here is my next shot.

Like with TPAs and financial advisors, there are some good ERISA attorney and not so good ERISA attorneys.  I know this from my experiences working for TPAs and working at a law firm.  I will never forget reviewing the work of a California ERISA attorney and an amendment he was trying to make to his client’s matching contribution formula.  The amendment was a monstrosity and I quipped to my plan conversion expert that this attorney can write the amendment, but good luck to us in administering it. So when picking an ERISA attorney for a single employer plan, pick an ERISA attorney who works with single employer plans. So when hiring an attorney for a 401(k) plan, don’t hire an ERISA attorney who only works on union (multiemployer) plans and doesn’t know what revenue sharing is (Sorry, Jani and Pat).

Also, value is an important consideration. If a TPA is offering a pre-approved plan document for $2,000 and an attorney is creating a plan from scratch for $7,000 to $25,000 and the plan belongs to a small or medium size employer, then I would actually recommend using the TPA’s services. I also recall an advisor friend of mine who advised me of an ERISA attorney who went through a plan sponsor’s entire $100,000 budget for a full fiduciary review before all the work was completed.

To me, value is such an important concept in terms of all retirement plan services, than that is why my practice is focused on flat fee billing and being competitive with the legal services of TPAs. I stress a flat fee because retirement plan sponsors need cost certainty and because of my disillusionment with working for law firms, who stressed billable hours more than anything else. I have never been a big fan of the billable hour because since billable hours are the most important criteria in judging and rewarding partners and associates; it opens itself to abuse and overbilling. I understand why medium sized law firms need to bill by the hour, based on the overhead they carry.

As far as my TPA experience goes, I know it has been fodder for a lot of my material, but my career would have been nothing without it. It brought me so much experience that I have never would have gotten from a law school textbook or the halls of a law firm. Working for a TPA made me think quickly on my feet, churning out plan documents quickly, come up with solutions for problems you don’t read in textbooks, and made me lover the idea of flat fee billing for plan documentation. I wouldn’t have traded that experience for anything.

I was 5 years old when Star Wars came out and little did anyone know at the time what a phenomenon would be or that it would be the 4^th episode in a six film saga. George Lucas is still backing up the Brinks truck as even my son has picked up a light saber for the first time.  The morale of the story, an occurrence can be more than just a onetime thing; it might be part of a bigger picture.

When fee disclosure regulations were finally promulgated by the Department of Labor and were supposed to go into effect this July, many just saw it as part of a long time struggle for plan sponsors to finally get what they needed to get to manage their fiduciary duty, disclosure of all fees charged by their retirement plan providers. With a delay of its implementation to January 2012 and quite possible later and with what the DOL is also cooking, it is quite clear that fee disclosure is just part of a bigger picture for the DOL.

I really believe that the change in the definition of fiduciary by the DOL in the retirement plan marketplace will shake up the industry more than fee disclosure because the change will certainly force some brokers of the market or forced to partner with ERISA §3(38) fiduciaries. The new fiduciary regulations may be delayed as politicians from both sides of the political aisle have lodged their complaints (money from the financial industry always helps). The fact is that the fiduciary definition needed to be changed after a 35 year slumber. The current definition was developed when there was no 401(k) plans, or revenue sharing, or expensive 401(k) platforms that are “free”, or an alphabet soup of mutual fund class shares.  So clearly a definition that was set when the bulk of retirement plans were pension plans and drivers were popping 8 track tapes in their car, needed to be changed.  We will see what final shape that the new definition of fiduciary will take, but I still believe that brokers will be required to abide that standard or leave the business of retirement plan advising. The proposed fiduciary definition change will create a level playing field where all advice to plan sponsors on retirement plans will be product neutral and where the needs of the plan sponsors, participants, and beneficiaries come first.

Why are the Section 408(b)(2) regulations part of a bigger puzzle? If you read the regulations or a synopsis of the regulations, you will see that retirement plan providers will have to identify to the plan sponsor s whether the services they provide are fiduciary services or not. How will service providers know they are fiduciaries if the definition of fiduciary is in limbo?  So clearly, that is connected with any efforts by the DOL to change the fiduciary definition and more than likely that the 408(b)(2) regulations will be further delayed until the DOL implements new fiduciary regulations.

408(b)(2) and the fiduciary definition are tied together. They are both about disclosure, defining roles, and eliminating conflicts of interests. They are perfect together.

408(b)(2) is just one small step in a long term saga by the DOL to start cleaning up the retirement plan industry, just like Star Wars (now known as Star Wars: Episode IV: A New Hope) was part of a long term saga.

My latest JDSupra article can be found here.

As an ERISA attorney who drafts plan documents at a flat fee, my biggest competitors are not other ERISA attorneys, but third party administration (TPA) firms.

Plan documents are just another service that TPAs can provide and they can provide it either for free (as most of the bundled providers do) or at a cost that is highly competitive against most law firms. Some TPA firms have a legal department that drafts these plans, others have paralegals or plan administrators handle that duty. I know a thing or two about this topic, having done that as the Director of ERISA Legal Service for a certain TPA for almost 5 years.

As you know, retirement plans are legal entities and plan documents are legal documents that have legal consequences to the plan sponsor and the plan trustees. Would you want these plan documents to be drafted by someone who wasn’t an attorney? Even if your TPA has a legal department, there is no attorney-client relationship between the TPA’s attorney and the plan sponsor. So what? With an attorney-client relationship, the plan sponsor’s needs come first. With a TPA attorney, the TPA’s needs come first because a TPA attorney doesn’t have that duty of care. The independent ERISA attorney is essentially a check on the TPA, to ensuring proper administration. A TPA attorney can’t do that because they are the TPA.

I have a client who has had their defined benefit plan butchered by two consecutive actuarial firms. An independent ERISA attorney could have alleviated some of the problems before they happened, namely paying someone a lump sum even though the law prohibited that person getting a lump sum.

Attorneys don’t have a sterling reputation when it comes to reasonable fees, especially ERISA attorneys. With a low overhead and a flat fee, I am trying my best to make needed ERISA legal work affordable to plan sponsors.

In the movie Caddyshack, Ted Knight’s character Judge Elihu Smails was dumbfounded that Chevy Chase’s character; Ty Webb didn’t keep score on the golf course. Judge Smails asked Ty that if he didn’t keep score, how did he measure himself against other golfers? Ty replied simply: “by height.”

I was on the phone this afternoon with a financial advisor who is trying to get into the 401(k) business. In addition to being an ERISA attorney, I have always dedicated myself into helping financial advisors get a footing in this industry (without a cheesy legal bill sent in the mail) as my way of paying it forward and based on my experience of helping advisors out when I was an attorney for a certain third party administration (TPA) firm.

The advisor was using one of those commercial retirement plan databases and cold calling potential clients. This advisor was targeting plan in the $1million and up range within a certain radius around his practice. In addition to telling him to focus his search to plans that were in the $1 million to $10 million range that were with a bundled provider, I told him that before any potential client meetings, he should ask me to review the plan’s Form 5500.

As you may know, the Form 5500 is the tax return filed by a qualified retirement plan. It tells you some important information like the type of plan, number of participants, and asset size. Thanks to the transition to fee disclosure, there is now more information regarding plan expenses.

A lot of companies that have created retirement plan benchmarking tools for plan sponsors and advisors to use rely on Form 5500 for a basis of their benchmarking. Some are highly critical of that practice because of the lag in the public release of Form 5500. Only thanks to electronic filing, do we now have a look at the Form 5500 for the 2009 plan year. So a Form 5500 doesn’t have current plan information, it’s yesterday’s news that you get to read tomorrow.

I have yet to find a plan benchmarking provider maintain that a Form 5500 is the provenance of a retirement plan. A Form 5500 doesn’t give you the up to date information for the plan or its current fund lineup or whether there are plan administration or document errors. So a Form 5500 is just a small snapshot of a plan and only when you meet a plan sponsor and review their plan documents, asset statements, and valuation reports, do you get the full picture of the plan.

The Form 5500 can be a conversation starter with a plan sponsor and the conversation can end pretty quickly if the information on the Form 5500 is stale if there is a change of a retirement plan provider or the company has suffered a loss of participants.

However, Form 5500 can show a chock full of nuggets of information that can show how poor a plan was at the time of the 5500’s filing. I recently had a client where I did my Retirement Plan Tune-Up review (for $750, cheap plug). The 5500 noted that the broker was getting about 60 basis points on a $14 million. That was a lot of dough for a plan that size. I asked the plan sponsor whether they had a copy of an investment policy statement or provided education to plan participants, so they can limit their liability under ERISA §404(c) for a participant directed plan. The broker didn’t help them in that area; he only helped himself in pocketing 60 basis points. Two days later after having a phone call with the shareholders of the company, the broker was fired.

I looked at a 5500 form for a prospective client for a financial advisor in the Midwest and noticed that the plan sponsor was charged $54,000 for a limited scope audit for their required plan audit, which was about $40,000 too much.

Ask my old bosses at a certain TPA who had to retire in disgrace because they were listed as the trustees on the Form 5500 of an auditing firm that they referred work to and audited most of their clients that required plan audits (violating the independent audit requirement that plan audit required plans must meet). So ask them whether a Form 5500 can reveal some damaging information.

A Form 5500 can be evidence that a plan is paying too much in fees, it’s not proof. Proof can only come from a full review. It’s a conversation starter and not an ender. It is a great way to prospect clients, but it is not the full proof mechanism to get clients. Unlike golfer’s height, a 5500 is a measure of a retirement plan, not the definitive measure. Like what they show on C.S.I., a Form 5500 is just a little evidence that a retirement plan is not in shape.