The Rosenbaum Law Firm P.C. Blog

The U.S. District Court for the Western District of Michigan granted Pfizer Inc.’s motion to dismiss a case that claimed that Pfizer paid “unreasonable” recordkeeping and administrative fees. U.S. District Judge Paul Maloney ruled that the plaintiff presented his case with a flawed methodology.

The complaint argued that plan participants should have received better rates for recordkeeping because of the plan’s large size. The Pfizer Savings Plan has more than $19 billion in assets and serves 56,648 participants, according to its latest Form 5500 filing.

It was alleged that plan participants paid, on average, $24 more in recordkeeping fees than they should have each year between 2017 and 2021.

Pfizer claimed that the Plaintiff didn’t use a proper methodology to establish his claims. The complaint had compared average fees paid over several years to just one year of a plan’s costs.

Pfizer’s motion to dismiss also argued that the plaintiff failed to allege that the plan fees were excessive relative to the service provided.

Also, Pfizer argued that Plaintiff failed to identify a comparable 401(k) plan that paid lower recordkeeping fees.

Again, federal courts are tired of these cases. Alleging a plan that should be cheaper isn’t proof enough of a fiduciary breach.

I had to be the Larry David here, but one of my gripes as a plan fiduciary and ERISA attorney is when third-party administrators (TPAs) or custodians screw up on paying fees.

I will have one plan where every quarter, there is some issue. It usually involves multiple checks. Yes, they send me multiple checks for one fee. Sometimes, they don’t send any checks for the quarter.

As a plan provider, you need to be competent, and paying the right fee is the first step.

Years ago, I was a 3(16) on the plan. The TPA paid me the advisory fee one quarter, which was a few times more than mine. I deposited the check in escrow and wrote a check back, as soon as they discovered the error. That same TPA later paid the advisor a fee that equaled their annual fee, instead of their quarterly fee. The best part is they wanted me to pay for the error, instead of returning the money that they weren’t entitled to. They even had the plan sponsor ask me to pay for it. They never asked the TPA. Needless to say, a threat to call the Department of Labor fixed everything.

When a plan terminates and distributes all its assets or merges all its assets into another plan, you need to understand that a Final Form 5500 needs to be completed. Otherwise, you will get notified by the Internal Revenue Service or Department of Labor that a Form 5500 is missing.

This happens a lot when your plan merges into a multiple employer plan, pooled employer plan, or a successor plan. Make sure a Final 5500 is done because the government will insist you get one done.

I write a lot because social media gets my name out there at a much lower cost than hiring a public relations. Director. I know because I’ve been there and done that. I write articles, I blog, and I started this crazy website.

Ever since I started my practice 14 years ago, I have two email newsletters sent out to all my contacts including plan sponsors, and one geared towards financial advisors. Over time, I’ve gained contacts and lost some. I think my latest number is 12,000 subscribers and maybe I get a 20% open rate for my emails.

The most important thing about emails is that it’s through Constant Contact, so there is an easy unsubscribe button. I understand people’s time is limited and maybe they don’t have time to read my emails and I understand that. I don’t take offense when people I’ve networked with or worked with in the past decide to unsubscribe. It’s not personal, it’s business.

When you network and you meet people through LinkedIn, I assume that I’m going to be added to their mailing list. I assume that because that’s what I do. From time to time, I’ll check the emails as a courtesy and I don’t unsubscribe from these emails even for the financial advisor who asked me to do an online meeting with her 5 years ago and has done nothing with me since. The retirement plan business is relationship-driven, so I don’t want to offend anyone or hurt their feelings.

That being said, if you send emails out, have an unsubscribe button. This isn’t organized crime or my old synagogue; people have a right to quit. If they don’t want your emails, they should have the ability to unsubscribe. If you don’t offer that ability, then you’re going to peeve a heck of a lot of potential clients and fellow plan providers.

I’m certainly passive-aggressive when I state that I have two financial advisors who consistently barrage me with emails without unsubscribing buttons. It wouldn’t be so bad to get an email now and then, but a daily email? I have one financial advisor who sends me 3-4 email updates a day. I don’t have the heart to tell them to stop bothering me, so I’m partly to blame for not setting them straight.

Your emails aren’t the Hotel California where people can check in but never leave. This isn’t some cult; you need to let people have the opportunity to opt out of receiving your emails.

When your practice is successful as a retirement plan provider, you’re going to want to hire people who work outside the retirement plan business to help you manage your firm because the day-to-day running of a business doesn’t just need someone who is experienced in retirement plans. Hiring a chief operating officer or office administrator is extremely important for growing any business and you’re going to want someone who is experienced in helping run a business.

I’ve worked for several businesses over the years and the most smoothly run businesses are usually the ones where the owners seek outside help in many of the important business functions like practice management and Human Resources,

When you hire someone to help with the day-to-day running of the business, you need someone who has experience in dealing with the nuts and bolts rather than someone who likes to talk and write about practice management without actually practicing it.

In the 12 years that I worked for someone other than myself, I worked with hundreds of different employees including bosses, people on my leadership level, and those who worked below and I have to say the co-worker I liked least was the law practice administrator at a law firm I worked at, called Fred.

Fred was the law firm administrator or at least he claimed he was. Other than reminding attorneys to submit their timesheets, he did very little to help the managing attorney run the firm. He tried to act as the gatekeeper to the managing attorney, but all he was, was a snitch. I remember him telling me that I should send a proposed client solicitation letter to him so he could edit it and send it off to the managing attorney so it would help with the process. So I drafted a solicitation letter to Fred and he never edited it, he gave it to the managing attorney and I had to get an earful from her on how bad it was. I remember Fred once telling me that my goal of starting a national ERISA practice is one of the ones he was concentrated on expanding for the Firm in 2007. I’m still waiting for him in 2020 to help.

My biggest gripe about Fred is his use of the marketing department to publish his articles. Now I’d write an article for the firm to get clients or build relationships with plan providers. In the two years I was there, I’d write three articles, which is less than my haul at my practice in a week. The problem was that not only did my article have to get approved by three different partners. I had to deal with the fact that Fred was clogging the marketing department with his articles. The problem with his articles is that they had to do with law firm management and that’s not one of the businesses that my law firm was in. We were in the business of law and his articles on law firm management weren’t going to draw us a dime. Fred was using law firm resources to prop up his image as some sort of law firm management guru, which he wasn’t. No one in the firm or the marketing department would say anything because he supposedly had the managing attorney’s ear. He’d write an article a month, which was wasting law firm

resources that could have easily been spent publishing articles from attorneys that could help generate business.

The production of his articles ended at some point and I think it coincided with the fact that I started my firm and I would write articles lampooning what he was doing. I knew he was reading my work because he was accosting members of the marketing department, accusing them of egging me on in my articles which weren’t true. After all, I don’t need any help in getting egged on. Needless to say, Fred moved on from that law firm, and of course, moved on to a larger law firm where he tweets articles he doesn’t write and he’s not misusing that law firm’s resources to publish his articles.

The point is that you need to hire the best of the best to help your practice, not some narcissist who thinks they’re a celebrity in their own right when all they are is a fan of the concept of practice management without practicing it.

Going for that annual review was like going to a dentist if I had cavities. You know it would be painful because you’d hear how awful you were all year, so they could cut back on whatever salary increase you thought you should get.

From a plan provider standpoint, I understand the need to reduce salaries and minimize expenses. The problem is that employees have feelings too. That $5,000 you save in a salary increase might be the impetus for someone to leave. The problem is that it will end up costing you more than $5,000.

I once said that when I was the head attorney at a Third-Party Administration firm, it would take two people to replace me. It took three. Those two additional employees cost my old bosses a lot more than the $5,000 raise I didn’t get.

According to FinanceBuzz, 40% of Americans with retirement accounts have taken money out of them early, including more than 10% who have done so multiple times.

The average amount of money withdrawn by is $15,021.

These numbers are alarming, but with the upheaval over the last few years, this isn’t surprising.

Everyone is pushing lifetime income options for retirees because the fear is that there will be nothing left for retirees as they live longer.

T. Rowe Price announced the launch of Managed Lifetime Income (MLI), a new retirement solution designed to provide retirees in a defined contribution plan with stable and predictable monthly income for life.

MLI combines a managed payout investment from T. Rowe Price with a Qualifying Longevity Annuity Contract (QLAC) from Pacific Life.

I work (outside of plan audits) on a flat fee basis. What I say is the price is the price. If I misjudged the value of a service, the fault lies with me. I still live up to the bargain I made.

As an attorney and fiduciary on many plans requiring audits, I’m amazed by the courage of audit firms that want additional sums of payment after quoting a flat fee. Where I come from, we call that “chutzpah.” If you say that the audit would cost $15,000, don’t ask for another $5,000. The chances you’re going to get clipped and replaced by another firm are substantially high.

Live with the deal you made.

Over the last few years, we’ve seen the proliferation of companies offering ERISA §3(16) services. This is a natural growth of advisors offering ERISA §3(38) services, so 3(16) was a great way for third-party administrators (TPAs). Like 3(38), TPAs and other providers could offer 3(16) as an outsourcing solution where employers can outsource the headache of plan administration to a 3(16) named fiduciary.

The “Plan Administrator” of a qualified retirement plan is defined in section 3(16) of ERISA. The Plan Administrator should not be confused with a “Pension Administrator” or a TPA.

Unlike the TPA, the Plan Administrator has the following primary responsibilities:

◦ Ensures all filings with the federal government (form 5500, etc.) are timely made;

◦ Makes important disclosures to plan participants;

◦ Hires plan service providers if no other fiduciary has that responsibility; and

◦ Fulfills other responsibilities as outlined in plan documents.

A TPA has delegated these responsibilities, but the plan sponsor bears the responsibility. The §3(16) fiduciary/administrator assumes that responsibility, as the plan sponsor outsources it.

This is great, isn’t it? While I have been working with TPAs and financial advisors in trying to help them offer these services (cheap plug), I do see an issue. Unlike a §3(21) or §3(38) fiduciary that requires some sort of registration as a financial advisor, a §3(16) administrator much like a TPA does not need any accreditation. So nothing would stop someone from coming in out of nowhere and proclaiming themselves as the king or queen of 3(16) fiduciaries without having either the competence and/or honesty to be one. This industry has had its share of incompetent and/or fraudulent plan providers and without any requirement to be one, there will be an issue when a 3(16) administrator does go badly. Just look at the Vantage Benefits fiasco where a Dallas-based TPA offering 3(16) stole millions in plan assets.

Another issue is that there is a wide variety of services that ERISA §3(16) may offer from a heavy 3(16) where they offer support with payroll reports and a light 3(16) where they may not even sign the Form 5500. So as a plan sponsor searching for 3(16) providers, you need to vet them as well as understand what services they may provide.