The Rosenbaum Law Firm P.C. Blog

I’m the guy who will travel to a Target further from my home because the Target in Farmingdale is far better than Westbury and Valley Stream and people think I’m crazy to travel 15 minutes more for a better-run store with better clearance sales. When my family has had medical issues, we travel to the best doctor out there whether it’s in the same town or New York City, which has some of the best medical care in the world.

So I’m still shocked when plan sponsors want plan providers who are local. Shopping locally for pizza or food makes sense, but technology requiring your plan providers to be local is silly.

Thanks to technology, the plan provider across the country can virtually be in any meeting you need them to attend. As an ERISA 3(16) plan administrator with clients around the country, I’m always there when my clients need me even if they are in San Francisco. The Internet has made the world smaller, so there is no need to hire a plan provider that is local. Since you can have online meetings and constant email messages, there are no requirements that your providers be local. Find the best plan provider out there, whether they’re in town or thousands of miles away.

In real estate, it’s all about location, location, location. When it comes to plan providers, it’s about competence and reasonable fees.

The warranty in the electronics business is gravy for the retailers who sell it. You’ll be surprised how many people pay $20 to get a warranty on a $100 Blu-Ray player. When Best Buy was going national, they advertised how they wouldn’t sell warranties and then realized that they couldn’t turn down all that free money, so they started offering it.

A warranty is like insurance, so you should only insure those things that have a high-cost replacement. You insure your health, your life, your house, your car, and some appliances worth insuring.

This isn’t another diatribe about the fiduciary warranty that insurance companies give away for free even though their main business is insuring risk for a fee.

This is about plan sponsors who don’t insure their risk by buying fiduciary liability insurance or buying a plan service that could review their plan expenses and/or their plan document/administration.

Fiduciary liability insurance helps protect plan sponsors who find themselves also appearing as defendants in a lawsuit filed by an aggrieved plan participant in a town near you. I had clients sued in a class action lawsuit where the insurance company paid $900,000 for a $1 million legal fee (there was a $100,000 deductible) and this plan sponsor won their case.

So many plan sponsors don’t want to pay for a plan review that can help them identify plan issues they wouldn’t ordinarily find unless they were converting to a new provider. I have a plan review called the Retirement Plan Tune-Up for $750 and I can probably count on one hand how many I do a year. When I talk to plan sponsors and advisors, they seem interested but they treat a plan review like a trip to the dentist; something that they will avoid until it’s too late.

Spending some shekels on a fiduciary liability policy and a plan review is certainly well worth it to avoid greater harm later.

For plans that require an independent audit, the point of the audit is to determine the financial health of the plan to pay benefits to participants. One aspect is looking at the terms of the plan document, and making sure it’s consistent with plan administration. I have filed many voluntary compliance program applications, as a result of what an auditor finds.

So If a plan auditor has been working on a plan for years and finally discovers that the definition of compensation in the plan document is inconsistent from administration, it might be time to get a new auditor.

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

Inflation is affecting retirement plan limits again.

Starting in 2024, employees can contribute up to $23,000 into their 401(k), 403(b), most 457 plans or the Thrift Savings Plan for federal employees, up from $22,500 in 2023/

The catch-up contribution limit for employees ages 50 and older who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will remain at $7,500.

The limit on total employer-plus-employee contributions to defined contribution plans will increase to $69,000 in 2024, up from $66,000 in 2023.

The IRS also announced defined benefit plan limits for 2024. Effective Jan. 1, the maximum annual benefit that may be provided through a defined benefit plan is $275,000, up from $265,000.

Meanwhile, the IRS also raised the limit on annual contributions to an IRA to $7,000, up from $6,500 in 2023.

The IRA catch-up contribution limit for individuals ages 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000, the IRS said.

The Highly Compensated Employee threshold has increased to $155,000 and the Key Employee Definition is now at $220,000, both increases of $5,000.

Registered investment advisor (RIA) Creative Planning announced the purchase of Mesirow’s corporate retirement advisory services team.

Mesirow services over 350 retirement plans, representing approximately $13 billion in assets under advisement and management.

As of July 1, Creative Planning’s assets under management (AUM) are over $245 billion.

The Department of Labor proposed a new fiduciary rule.

The proposed rule would end the traditional five-part test for determining if an adviser is acting in a fiduciary capacity and replace it with a three-part test in which satisfying any one of the three conditions would make the adviser a fiduciary.

The first two criteria in the proposal say that if the adviser either invests money with discretionary authority or claims to be acting in a fiduciary capacity, the adviser is a fiduciary.

The third criterion is a bit more complicated: If an adviser renders paid advice “to investors on a regular basis as part of their business and the recommendation is provided under circumstances indicating that the recommendation is based on the particular needs or individual circumstances of the retirement investor and may be relied upon by the retirement investor as a basis for investment decisions that are in the retirement investor’s best interest,” that adviser is a fiduciary.

This part re-applies the “regular basis” requirement of the traditional five-part test to an adviser’s relationship with the public, or individual clients in aggregate, rather than applying it to the investors as individuals and their relationship with the adviser. This allows the DOL to cover one-time recommendations, such as rollovers into an IRA, annuity sales or investment menu design for retirement plans as fiduciary acts.

With an election in 2024, and probable litigation, time will tell if the rule ever becomes final.

Despite my concerns about allowing crypto options in 401(k) plans, that issue will be back for us. As Bitcoin is at $37,000 and rising, there is expected approval of Bitcoin Exchange Traded Funds.

While the Department of labor has warned fiduciaries about these investments and allowing participants to invest in them, expect more providers to push it, as well as plan sponsors being interested in them.

A friend of mine advised me of the recent death of the owner of a third-party administration (TPA) firm, that I actually introduced the friend to.

I remember when that TPA owner first called me, it was a few months after I started my own practice. For a couple of years, the relationship was very fruitful, in terms of plan document work and monthly retainers. He was one of those people, who promised to make me rich and failed. We were going to make a mint in the multiple employer plan business, but he probably had ADHD and we didn’t, once the Department of Labor came out with their advisory opinion on Open MEPs in 2012. I noticed some issues when long-time employees started to leave and he would say disparaging things, including the female actuary he bought the business from, and probably stiffed. Then he stiffed me on $40,000 in plan documents. Then he started changing the name of his TPA with new names and entities to avoid paying off his creditors, including me after I got a default judgment in a state court.

I don’t get joy from his death and never wished bad on him after what he did. He was a narcissist, he was a cheat, and he was a liar. I am none of those things and I know, that I never would have treated him the way he treated me, and his former employees. I have no anger towards him, even if he had promised me to pay what he owed me after Hurricane Sandy flooded my house. He became such a non-factor to me, that I had forgotten about him until I found out he died.

Before I officially started my own practice as my sole revenue generator in 2010, I started the law firm about a decade earlier because I probably knew I would be on my own.

The first idea for The Rosenbaum Law Firm was a flop. Charging $100 for wills and $150 for income tax returns, meant working a lot for little money, and I could never have made it up in volume. People don’t hire law firms as they shop at Wal-Mart. Professional services aren’t bought and sold on price.

Yet, over the past 25 years, I have see plan providers feel that they can make do, by charging next to nothing for their services, whether it’s advisors or TPAs. Whatever discounting you give in pricing, you are not likely to make it up in volume. You need to make money and offering your services for next to nothing might benefit the client, but won’t stop you from going out of business.