The Rosenbaum Law Firm P.C. Blog

What makes a good retirement plan financial advisor? Well, it takes attention to detail, an understanding of what the role to entails, and dedication to the client. In addition, what I find is the way a good financial advisor handles other retirement plan providers.

A good financial advisor will use other retirement plan providers to act as part of their team to offer the best overall retirement solution to their client. They will lean on the third party administrator (TPA), ERISA attorney, or auditor to assist with their clients and use them as a resource for any questions they may have, as well as a sales resource for potential clients. When I was working for a New York TPA as well as in my practice today, I have helped advisors with potential clients. It’s a feather in an advisor’s cap as it shows a potential client that they offer white glove treatment if they can get a TPA and/or ERISA attorney to offer assistance without being retained first.

The not-so-good financial advisor sees themselves as an island, they are very possessive of their clients and are very wary of any provider encroaching on that client. They also have no use for any other retirement provider because they don’t value what they bring to the table. They only see other retirement plan providers as referral sources which they are not because most of the referrals that these providers receive are from other financial advisors and in the rare case that they get a direct referral from a plan sponsor, they are only going to refer that client to financial advisors that they have a longstanding relationship with.

Financial advisors should target a few TPAs that they can work with and rely on with any proposals or any questions for potential clients and to assist current clients. They should also seek out an ERISA attorney who has an eye on developing relationships with the hope of getting business later, rather than trying to charge for every phone call and every consultation. See them as part of your team to help augment your sales team, but they likely won’t be your sales team.

The reason I never hired an employee is because I was an employee once too. I had co-workers, many of who I couldn’t trust (I did work for a couple of law firms).

As far as plan sponsors relying on certifications for hardship distributions, that’s not something I’d go for as a plan sponsor. I’d still want to vet any hardship distributions. Otherwise, I fear that certifying is nothing more than a pinky promise that you abide by the rules, which is a hard pass for me since every issue for a participant will become a hardship.

The rules are the rules to me, I like enforcing them. If my liability is dependent on the plan, I want to make sure any hardship distribution request is on the up and up, especially the slim chance that the Internal Revenue Service will audit the plan and hardship distributions.

Any type of item that keeps you health is a good thing as long as you use it. So the floss I bought after my last checkup and the treadmill that I bought my wife a few years ago that is collecting dust are meaningless if they are not being used.

The same can be said about an educational policy statement that many retirement plan financial advisors are trying to draft for their clients or use as a way to solicit business.

In a nutshell, it’s a gimmick. Not a rip-off like the fiduciary warranty, but it’s not magic because any advisor could help plan sponsors draft one.

An educational policy statement (EPS) mimicked of course after the investment policy statement is cute marketing, but absolutely of no use if the plan sponsor isn’t going to abide by it. I like the idea behind the EPS, it’s always a great idea to memorialize fiduciary decisions with paperwork. I just worry that plan sponsors won’t provide the investment education that plan participants need in a participant-directed 401(k) plan. An EPS is a nice idea on paper, but only effective if it’s not just on paper and being used to offer education.

I have received more inquiries about after-tax voluntary contributions in the past two weeks than in the last 20 years. Why? Well, a lot of people are reading up on these Mega Backdoor Roth articles online.

A mega backdoor Roth is designed specifically for those with a 401(k) plan. According to these articles, participants can put up to $46,000 of post-tax dollars in 2024 into their 401(k) plan and then roll it into a mega backdoor Roth, which is either a Roth IRA or Roth 401(k). The article will mention caveats as if they’re nothing, but 99.99% of the time it won’t work. That’s because the mega backdoor Roth feature in a 401(k) plan will subject those after-tax contributions to an ACP test and since people who would use this feature are highly compensated employees, it’s not going to work, even if the plan is a Safe Harbor 401(k).

U.S. District Judge Jeremy Kernodle, of the Eastern District of Texas, has frozen the new fiduciary rules, by issuing a preliminary injunction to freeze the Department of Labor’s (DOL’s) Retirement Security Rule, which is supposed to take effect on Sept. 23.

The preliminary injunction was requested by the Federation of Americans for Consumer Choice, which filed suit, along with several independent insurance agents.

Kernodle said the new Fiduciary Rule suffers from many of the same problems as the DOL’s previous attempts to expand the meaning of fiduciary under ERISA, stating that the Fifth Circuit vacated an earlier rule because it “conflict[ed] with the plain text of [ERISA],” was “inconsistent with the entirety of ERISA’s ‘fiduciary’ definition,” and unreasonably treated numerous financial services providers “in tandem with ERISA employer-sponsored plan fiduciaries.”

It’s just a preliminary injunction and we will see how this plays out.

Like I say, the older I get, the more and more I’m like Larry David.

The biggest pet peeve on LinkedIn is that invitation from a plan provider. It’s always a financial advisor and it’s always a broker. As soon as I accept the invitation from the broker, there is that invitation to talk. Not a talk to network, a talk to sell their advisory services directly to me, since they sell advisory services to other lawyers.

I have been in practice since 1998. I’ve known thousands of advisors in that time frame. I have helped hundreds of advisors over the years with free answers to their questions and have helped them with their clients. Now, if I ever needed advisory help, who am I going to use, the advisors I’ve known, some for over 20 years, or the broker who just DMed me after accepting their LinkedIn invitation?

I’ve always been a big fan of index funds, probably more so when exchange-traded funds became a thing. From experience, most funds fail to meet the benchmarks. Yet, I grew up in the retirement plan business when it was claimed that 401(k) funds using index funds cost more.

If you have grown up in this business after 2012, you will think I’m crazy. Yet I lived in a business where plan sponsors weren’t told about revenue sharing or sub-TA fees that actively managed funds would kick off to the third-party administrator (TPA) to pay for administrative expenses that index funds couldn’t afford to pay. Mutual fund expense ratios weren’t part of the discussion and when plan sponsors weren’t told of revenue sharing, the all-in cost wasn’t a thing.

Luckily, we now live in a fee-transparent environment, and the studies that show that 401(k) participants are paying less and less in mutual fund expenses is because of the transparency that many in the industry were fighting back in 2012.

While the issues concerning Pooled Employer Plans (PEPs) in pricing and audits are slowing its growth, another headache is that potential adopters of these plans are unaware of their existence.

According to a paper by the Center for Retirement Research, while 13 percent of employers don’t know what a 401(k) plan is, 79 percent are unaware of what a PEP and a multiple employer plan is.

I can say from a sales standpoint, that’s not good, especially in dealing in states where auto-IRA programs are offered and required for employers who don’t offer retirement coverage.

The Department of Labor (DOL) has created an online system for qualified plan termination administrators to submit abandoned account information for benefits, including 401(k) plans.

The Employee Benefits Security Administration (EBSA) announced the new system to allows administrators meet requirements under its Abandoned Plan Program. That program, which started in 2006, allows distributions to participants and beneficiaries of retirement plans that have been abandoned by sponsoring companies.

The new system creates more efficiency in administering abandoned plan benefits, which have previously only done by email and paper.

When I was in college in the early 1990s, I was heavily involved in student politics. I would go and buy things that made me look important even when I wasn’t. I got the beeper that no one called and I had one of those Day-Timer organizers.

People who grew up today have their iPads, but the Day Runner was the iPad of its day because it would include my contacts, notes, calendar of events, etc. I used to call my leather Day-Timer, the “football” in honor of the military briefcase that has all the nuclear weapon launch codes that a military attaché was attached to by handcuffs. I was again, sounding more important than I was.

Plan sponsors need their own “football”. They don’t need nuclear launch codes, but they do need to keep copies of their plan documents, fiduciary meeting minutes, investment policy statements, investment education materials handed out to participants, fiduciary bonds, liability insurance binder, enrollment meeting attendance sheets, and valuation reports. Thanks to technology, they don’t have to be in a Day Runner or a binder, they can be electronically saved after being scanned. Since the paper doesn’t too well to paper, fire, and trash, a plan sponsor should save all plan information to a USB flash drive and some sort of cloud. This “football” will make sure the plan sponsor has all the information they need to defend themselves in an audit and/or litigation.

The plan sponsor “football”. It’s just one thing that if they have, they can’t fumble away. Even my New York Giants can’t fumble that.