The Rosenbaum Law Firm P.C. Blog

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.

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.

I always believe that regardless of whether it’s business or regular day-to-day life, you can’t be everything for everybody. Being honest with that is only half the battle.

Years ago, I met someone who was interested in starting a registered investment advisory (RIA) firm. He called me for my insight on the retirement plan business, as well as my work in drafting advisory agreements for RIA firms and their retirement plan clients to comply with the fee disclosure regulations. The next week or so, he called me and asked whether I could work on his RIA registration or whether he should use one of those businesses that only deal with RIA setups and registration. Looking at my experience in doing that and comparing myself to these businesses, I politely told him that these firms would be a better fit for his RIA registration. It’s not that I couldn’t do the work; it’s just that the fees and length of time in doing the work are probably better by using a business that does nothing but RIA registrations. Perhaps this new RIA will be a client of mine, perhaps not, but he appreciated my honesty. Again, you can’t be everything for everybody.

I have a friend of mine who works for a great third-party administration (TPA) firm in the Northeast. Only problem is that when it comes to smaller plans, the fees are high. Nothing wrong with that, except if you are a smaller plan and were dead set on getting this TPA to handle your plan. Anyway, this salesperson met one of the accountants he was familiar with. The accountant had a lot of opportunities in single-employee, defined benefit plans. With a $4,000 minimum for the actuarial work, the salesperson told the accountant that they were better off finding another firm for these plans at less than half what his minimum fee was. Again, you can’t be everything for everybody.

Contrast this with a case at my old TPA. We had a 401(k) plan where the human resources director hated us from day one because we wouldn’t do the work she received from the previous TPA she liked. She was a problem from Day 1, but we took the case because we had a great relationship with a southern RIA firm. So this client was a problem from Day 1, but they seemed to be interested in changing the plan by making it a K-SOP, basically adding an employer stock ownership feature (ESOP) to it. The client’s advisors asked me about our experience with it and I was honest, I said we had a couple of those cases. My boss who was an ERISA attorney, but didn’t practice since the Ronald Reagan administration, knew better. He flew out to meet the client and since he always knew better (since he thought I couldn’t speak or sell), he was going to educate the client on K-SOP even though he knew nothing on the topic. Story cut short, my boss’ lack of knowledge was exposed, and not only did we lose the client, but the RIA who referred us to the client also lost the client as well.

Regardless of whether it’s a TPA, RIA, or an ERISA attorney, you know you found an honest provider when they basically tell you that they can’t handle your plan because the plan is not a right fit for their book of business. These are providers who are telling you that one of their competitors is a bigger fit because they would rather you go somewhere else and be happy because it would be good for you and good for them.

When you start fixing up the house (for me, a never-ending battle) and replacing appliances or items like the front door or the roof, you realize that the replacements are more energy efficient. I realize that when I check my electricity bills and how going solar won’t save me much. Replacing that old refrigerator or that washing machine can lead to some savings on your energy bills.

When it comes to retirement plans, there are so many of them that are inefficient in either their cost structure or plan design. While cost structure will be all disclosed to plan sponsors (who have the duty as fiduciaries to determine their reasonableness), plan design inefficiency is something that won’t be discovered until the plan goes through an independent review (like my Retirement Plan Tune-Up) or takes the plan to another third party administrator (TPA). Inefficient plan designs come in all sorts, but it wastes money like that 40-year-old furnace I replaced 15 years ago.

An inefficient plan design wastes money because it either makes less cost-effective contributions or it doesn’t maximize tax-deductible contributions to highly compensated employees. So it either wastes money in unnecessary contributions or is inefficient for tax savings.

In terms of wasting money, it could be a defined benefit plan that has outlived its usefulness or it could be a 401(k) plan with a new comparability plan design and a safe harbor matching contribution (because unlike a safe harbor 3% profit sharing contribution, you cannot use the safe harbor matching to offset any new comparability contributions to non-highly compensated employees like you could with the safe harbor 3% profit sharing contribution). A plan that doesn’t maximize contributions could be a 401(k) plan that consistently fails discrimination testing and doesn’t implement a safe harbor plan design or a plan that doesn’t offer a new comparability profit sharing allocation to highly compensated employees when the plan sponsor can afford it.

Retirement plans are a great employee benefit for retirement savings, but you should never forget the tax savings component it has.

So when I consistently state the claim that plan sponsors need to find a quality TPA that is not predicated on price, but predicated on its competency and knowledge of cost-effective, retirement plan design.

When you look for new appliances, you always look for those with an Energy Star sticker. When shopping for TPAs, look for those who would deserve a Tax Star sticker (if one existed, don’t steal my idea!).

Artificial intelligence (AI) has always been a concern of mine since seeing Terminator and Terminator 2. As a retirement plan professional, I know it will have an impact on our business and will probably eliminate some positions in the industry.

Since the beginning of the assembly line and probably even before that, technology has put people out of work. I’m sure AI will help participants, plan sponsors, and plan providers will make things easier from most facets of how plans work. We might even use AI for plan design and I’m sure they will be heavily involved in asset allocation. Whatever the outcome, time will tell because we can’t understand the changes, until we see it. Just remember how many people said fee disclosure regulations would ruin the industry?

I’ve been in this business for 25 years and hope for another 25, but fears of people saving for retirement will not likely change. One in five Americans believe they will never be able to retire, according to an Axios/Ipsos poll on retirement.

For the 20% who don’t think they’ll ever retire, a super majority (70%) say it’s because they can’t or won’t be able to afford to retire, while only 19% of people said they just don’t want to retire (like me).

Fiduciaries of a retirement plan sponsored by DST Systems Inc., including investment management firm Ruane, Cunniff & Goldfarb Inc. — will pay more than $124.6 million to resolve violations of ERISA. The Department of Labor (DOL) sued Ruane, Cunniff & Goldfarb in 2019 alleging that the firm used a “self-proclaimed investment strategy of ‘non-diversification’” that resulted in losses for the plan’s more than 9,000 participants.

According to the DOL, one pharmaceutical company’s stock grew to encompass more than 45% of the plan’s assets. An investigation by the DOL determined that the plan managers violated the Employee Retirement Income Security Act for failure to diversify a plan’s investments in order to minimize the risk of losses.

With apologies to Tod Higgins (played by Keanu Reeves) in “Parenthood”, you need a license to practice law to be an ERISA attorney, you need to be a CPA to be a retirement plan auditor, you need a securities license to be a financial advisor, but any shmuck can put out a shingle and call themselves a third party administrator (TPA).

There is no required training or licensing for someone to operate a TPA business and I find that scary for a position that requires such knowledge and expertise to do the job of plan administration and recordkeeping properly.

So when looking for a TPA, look for any ASPPA designations or other accreditations such as an enrolled actuary among the professionals you hire as your TPA.

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

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

With apologies to Tod Higgins (played by Keanu Reeves) in “Parenthood”, you need a license to practice law to be an ERISA attorney, you need to be a CPA to be a retirement plan auditor, you need a securities license to be a financial advisor, but any shmuck can put out a shingle and call themselves a third party administrator (TPA).

There is no required training or licensing for someone to operate a TPA business and I find that scary for a position that requires such knowledge and expertise to do the job of plan administration and recordkeeping properly.

So when looking for a TPA, look for any ASPPA designations or other accreditations such as an enrolled actuary among the professionals you hire as your TPA.