The Rosenbaum Law Firm P.C. Blog

Every year, most 401(k) plan sponsors get a Form 5500 from their TPA or other provider with instructions to electronically sign and file it.

And I’m convinced plenty of plan sponsors spend more time deciding what they want for lunch than reviewing the Form 5500 before signing it.

That’s a mistake.

Your Form 5500 isn’t the terms and conditions for an iPhone software update. When you sign it, you’re signing a government filing containing information about your retirement plan. You should have some idea what it says.

I’m not suggesting that every plan sponsor needs to become a Form 5500 expert. That’s why you hire professionals. But you should review the basic information. Does the number of participants look right? Do the plan assets make sense? Are contributions reasonable? Is the employer information correct? If an audit is required, is it attached?

Most importantly, if something doesn’t look right, ask.

I’ve been practicing ERISA law long enough to know that mistakes happen. Good TPAs make mistakes. Good recordkeepers make mistakes. Sometimes incorrect information was supplied by the plan sponsor in the first place.

The problem is that once an incorrect Form 5500 is filed, the government doesn’t really care that you didn’t prepare it.

You signed it.

A Form 5500 can also be a great annual checkup for your plan. Comparing this year’s filing with last year’s can uncover changes or inconsistencies that deserve an explanation.

Your providers should prepare the filing and help you understand it, but the plan sponsor still has responsibility.

So when that Form 5500 arrives in your inbox, don’t blindly click through the electronic signature process.

Take ten minutes and look at it.

Ten minutes today might save you a much longer conversation with the IRS or Department of Labor tomorrow.

One of the biggest mistakes retirement plan providers make is assuming every client wants to be serviced the same way.

They don’t.

I’ve had clients who want to talk regularly. They want explanations. They want reminders. They want somebody holding their hand through almost every decision.

I’ve had other clients who basically want me to leave them alone. Do the work, tell them when something needs their attention, and don’t schedule another meeting just because your CRM says it’s time for a quarterly touchpoint.

Neither client is wrong.

Good service isn’t about giving every client the exact same experience. It’s about understanding what that particular client considers good service.

That’s especially important in the retirement plan business because you’re dealing with different personalities, different levels of sophistication, and different expectations. A small business owner who barely understands what a safe harbor contribution is has different needs than a benefits director who has administered retirement plans for 20 years.

Yet providers love standardization. Everybody gets the same emails. Everybody gets the same meetings. Everybody gets pushed through the same service model because that’s easier operationally.

Standardizing processes makes sense. Standardizing relationships doesn’t.

The best providers learn their clients. They know who needs a phone call instead of an email. They know which clients need reminders three weeks before a deadline and which clients will have everything ready before you even ask.

That’s relationship management.

The retirement plan business has always been a relationship-driven business. Technology has changed. Products have changed. Fees have changed. The importance of understanding people hasn’t.

You don’t need to become best friends with every client. You simply need to understand what they expect from you.

There is no one-size-fits-all approach to service.

The providers who understand that are usually the ones whose clients stick around.

One of the easiest ways for a retirement plan provider to lose business is also one of the easiest things to fix: stop making the financial advisor chase you.

I’ve been in the retirement plan business long enough to know that mistakes happen. Testing gets complicated. Payroll data is wrong. A distribution gets stuck somewhere. Sometimes you simply don’t have an answer yet. None of that bothers me nearly as much as radio silence.

If an advisor sends you an email about a mutual client, answer it. You don’t necessarily need the solution that day. Sometimes the best response is simply: “I’m looking into it and will get back to you.” At least the advisor knows somebody is paying attention.

The problem is when the advisor has to send another email three days later. Then another one. Then they call. Eventually, they’re not chasing an answer anymore. They’re questioning why they referred the client to you in the first place.

Financial advisors put their reputation on the line when they recommend a TPA, recordkeeper, or other retirement plan provider. When your service stinks, it reflects on them. That’s something providers sometimes forget.

Responsiveness isn’t a premium feature. It shouldn’t depend on whether the plan has $2 million or $200 million in assets. It’s part of providing service.

I’ve always believed that the retirement plan business is ultimately a relationship business. Relationships require communication. You don’t need to have every answer immediately, and you don’t have to be perfect. You just have to let people know you’re there and you’re working on it.

There are plenty of providers looking for new business. If you consistently make an advisor chase you for answers, eventually they’re going to stop chasing you.

They’re going to start looking for somebody else.

I’m generally not a big fan of government mandates. In the retirement plan business, however, it’s hard to argue with results when a mandate actually accomplishes what it was designed to do.

New research from Gusto shows just how much retirement plan coverage among small businesses has improved since 2019. The share of small businesses with active retirement plans has increased dramatically, with millions more workers now having access to retirement savings through work.

That’s a good thing.

SECURE and SECURE 2.0 deserve some credit. Congress increased tax incentives for small employers to establish retirement plans and tried to remove some of the obstacles that made offering a plan less attractive.

But I think state retirement plan mandates deserve a lot of credit too.

States essentially told employers that they needed to offer employees some type of retirement savings opportunity. Employers could use the state IRA program or establish their own retirement plan.

Guess what happened? A lot of employers established plans.

Gusto’s research found substantially greater growth among very small businesses in states with Auto-IRA mandates than in states without them. That’s important because small employers have historically been where the retirement coverage gap has been the greatest.

I’ve never believed that the state-run IRA programs themselves were necessarily the greatest retirement product ever invented. That’s almost beside the point.

Their greatest accomplishment may be forcing employers to finally make a decision.

For years, we talked about America’s retirement coverage gap while millions of employees had no workplace retirement savings opportunity. State mandates, combined with federal tax incentives, actually moved the needle.

There is still plenty of work to do. Access doesn’t guarantee that employees will save enough for retirement.

But you can’t save through a workplace retirement plan you don’t have.

More coverage means more people have an opportunity to save.

That’s progress, and that’s a good thing.

One of the biggest mistakes retirement plan providers make is believing that every prospect has to become a client.

They don’t.

Sometimes the best thing you can tell a prospect is that they don’t need you. Maybe their current provider is doing a perfectly good job. Maybe the service you’re offering isn’t appropriate for their plan. Maybe they’re looking for something you don’t do particularly well. There is nothing wrong with saying so.

I’ve turned away business during my career because I didn’t think I was the right fit. I’ve also told prospective clients that they didn’t need to hire me because there wasn’t anything wrong with what they were currently doing.

You would be surprised how much credibility that creates.

People remember the person who didn’t try to sell them something.

Too many providers approach every conversation with the same objective: close the sale. That’s when people start overselling services, criticizing competitors unnecessarily, or convincing plan sponsors that they have problems that don’t actually exist.

That may generate revenue today, but it’s a lousy way to build a reputation.

The retirement plan business is a very small world. Today’s prospect who doesn’t hire you may refer three clients to you later. The advisor whose client you told to stay with another TPA may remember your honesty when they actually have a client who needs help.

Not every opportunity needs to generate a check.

Sometimes the opportunity is simply demonstrating that you’re knowledgeable, trustworthy, and willing to put somebody else’s interests ahead of making a sale.

Providers spend enormous amounts of time trying to convince people that they’re trustworthy.

The easiest way to demonstrate trust is occasionally walking away from money.

One of the biggest mistakes retirement plan providers make is assuming that a quiet client is a happy client.

Sometimes they’re just quietly looking for another provider.

Clients rarely wake up one morning and decide to fire their TPA, advisor, recordkeeper, or other plan provider for no reason. Usually, dissatisfaction has been building for months or even years. Emails aren’t returned. Telephone calls aren’t returned. Nobody proactively contacts them. Their longtime relationship manager disappears and nobody bothers to introduce the replacement.

Eventually, somebody else calls.

That’s the dangerous part. Your competition doesn’t need to convince a satisfied client to leave. They just need to find the client you’ve been ignoring.

Providers spend tremendous amounts of money trying to acquire new business while sometimes doing very little to protect the business they already have. They’ll spend thousands on conferences, marketing campaigns, lead generation, and salespeople, but won’t spend 20 minutes calling an existing client to ask how things are going.

That’s backwards.

Client retention isn’t complicated. Communicate. Be responsive. Fix problems. Occasionally contact clients when you aren’t trying to sell them something. Make sure they know who their point of contact is. Most importantly, never give them the feeling that they’re just another plan number in your system.

You don’t have to constantly wine and dine clients. You just have to remind them that you actually care about their business.

Every retirement plan provider has competition. There is always another TPA, advisor, recordkeeper, or provider willing to take your client.

If you take care of your clients, your competition has a difficult sales job.

If you ignore them, you’ve already done most of your competitor’s work for them.

Retirement plan providers love technology. They love talking about their new portal, their app, their payroll integration, their participant experience, and whatever artificial intelligence tool they added last Tuesday. Technology is great. It makes our jobs easier and can make the client experience better. The problem is that providers sometimes think clients care about technology as much as they do.

They don’t.

Most plan sponsors aren’t sitting around admiring your website. They want their 401(k) plan to work. They want contributions deposited correctly. They want their Form 5500 filed. They want participants to get answers. Most importantly, when they have a problem, they want somebody to answer the phone or respond to an email.

I’ve seen providers with tremendous technology lose clients because their service was terrible. I’ve also seen smaller providers with technology that isn’t particularly impressive keep clients for decades because the client knows exactly who to call when something goes wrong.

Technology should enhance relationships, not replace them. A portal isn’t going to calm down a plan sponsor who just received an IRS or Department of Labor notice. A chatbot isn’t going to explain why a compliance test failed. When something goes wrong, clients want a human being who understands their plan and can tell them what needs to happen next.

Providers should absolutely invest in technology. But don’t make the mistake of thinking technology is your competitive advantage if everyone hates dealing with you.

The retirement plan business is still a relationship business.

Your technology may help you win the presentation.

The person who answers the phone is usually the reason you keep the client.

There is a big difference between a checkup and an autopsy.

A checkup is designed to find problems while you still have an opportunity to do something about them. An autopsy tells you what went wrong after it’s already too late.

Too many plan sponsors treat their 401(k) plans like the latter.

They don’t review plan operations. They don’t check whether the plan is being administered according to the document. They don’t review fees. They don’t review investments. They don’t confirm that payroll is properly applying the plan’s definition of compensation. They simply assume everything is fine because nobody has told them otherwise.

Then something happens.

Maybe an auditor discovers a problem. Maybe an employee complains. Maybe the company changes TPAs and the new administrator discovers years of operational errors. Or maybe the IRS or Department of Labor decides to take a look.

Suddenly, everyone wants a complete review of the plan.

That’s an autopsy.

A periodic independent review can identify problems when they’re smaller, cheaper, and easier to correct. Are eligible employees actually being offered participation? Are contributions being deposited timely? Is compensation being calculated correctly? Are distributions and loans being administered according to the document? Are plan fees and investments being reviewed?

None of this is particularly glamorous, but neither is writing a large check to correct something that could have been discovered years earlier.

Retirement plan mistakes rarely get better with age. A small operational error repeated for five years can become an expensive correction involving multiple participants, lost earnings, amended filings, and professional fees.

Plan sponsors spend money maintaining their buildings, computers, machinery, and other important business assets.

Your 401(k) plan deserves maintenance too.

Give your plan a regular checkup.

It’s considerably cheaper than paying for the autopsy.

A lot can happen to a business in 10 years. The company can grow from 20 employees to 200. Ownership can change. Highly compensated employees can come and go. The workforce can become younger or older. Compensation structures change.

Yet somehow, the 401(k) plan remains exactly the same.

That’s a mistake.

A retirement plan should reflect the company that exists today, not the company that existed when somebody signed the original adoption agreement years ago.

Plan design isn’t something that should only be discussed when a plan is established. Plan sponsors should periodically review eligibility, employer contributions, vesting, allocation formulas, automatic enrollment, Roth provisions, profit sharing, and other features to determine whether they still accomplish the company’s objectives.

Sometimes a plan is unnecessarily expensive because an employer contribution designed years ago no longer makes sense. Sometimes owners and highly compensated employees aren’t maximizing contributions because nobody bothered to revisit the design. Sometimes eligibility provisions create administrative headaches that could easily be eliminated.

I’ve seen plenty of plans where the sponsor doesn’t even know why certain provisions exist. The answer is usually some variation of, “That’s the way we’ve always done it.”

That’s not much of an answer.

Your business isn’t static. Your workforce isn’t static. The Internal Revenue Code certainly isn’t static. SECURE 2.0 alone has created changes and opportunities that sponsors should be discussing with their providers.

You don’t need to redesign your 401(k) plan every year. You should, however, periodically ask whether the current design still makes sense.

Your 401(k) plan is an employee benefit and a business tool.

If your business has changed dramatically over the last decade while your plan hasn’t changed at all, it’s probably time to take another look.

A 401(k) investment menu isn’t a museum exhibit. Investments aren’t supposed to be placed on display and left untouched for decades.

Yet that is exactly what some plan sponsors do.

At my old fakakta law firm, we had investments on the 401(k) plan lineup that hadn’t been changed for about 10 years. Why? We didn’t have a financial advisor. Nobody was really monitoring the investments, so the lineup essentially remained frozen in time. Ten years is an eternity when you’re talking about investments.

Plan sponsors have a fiduciary responsibility to prudently select and monitor plan investments. That doesn’t mean constantly replacing funds because of one bad quarter. It means having a process for regularly reviewing performance, expenses, management changes, investment style, benchmarks, and whether each investment continues to serve a legitimate purpose on the menu.

The biggest mistake is assuming that no news is good news. An investment doesn’t become prudent simply because nobody complained about it.

This is also why I believe having a competent retirement plan advisor is so important. Someone needs to help the fiduciaries monitor the lineup, document the process, and recommend changes when appropriate. The plan sponsor still retains fiduciary responsibility, but a good advisor helps make sure somebody is actually paying attention.

Investment committees should meet periodically and document their decisions. Keep minutes. Follow an investment policy statement if you have one. If a fund is being monitored, document why. If it’s being replaced, document why.

The objective isn’t to constantly change investments.

The objective is to demonstrate a prudent process.

Your participants are investing their retirement savings through the menu you provide.

Don’t let that menu become a museum exhibit because nobody bothered to look at it for 10 years.