The Rosenbaum Law Firm P.C. Blog

When it comes to building a retirement plan practice, networking is an important component. Whether you are a financial advisor or a third-party administrator or an auditor, placing an advertisement in the local newspaper or the yellow pages (if they still have them) will be costly and less likely to bring in clients. The fact is cultivating a close network of referral sources and spheres of influence will be more productive in netting clients than any advertisement or Google search analytic.

While networking is important, the right kind of networking is more important. What is the right kind of networking? Pretty simple, it’s about reaching the audience of potential clients and referral sources. Believe me, 14 years into building my practice, I know the good and bad of networking. Good networking is developing relationships with other professionals who can refer you business. Those can be accountants, attorneys (forget my old law firm, I had better luck networking with dead people), or other retirement plan professionals. Bad networking is networking with groups of people that can rarely bring you business. That can be networking with sole proprietors, networking with people who can not serve as a referral source for potential clients or people who right off the bat, claim they can get you, clients. I have been in business in one form or another for 22 years and I have never received a client from someone who claimed they can get me, clients.

Networking is all about building relationships and building trust and it takes time. But there is a time when you have to realize whether networking with particular groups of people is worth your while. I used to network with a small business group on Long Island for years. Nice people, attended a lot of events. Just never got a client, it wasn’t the right fit. People who are struggling in business have no money for 401(k) plans and if they do, a simplified employee pension plan is great because you don’t need an ERISA attorney or TPA for that. Funny thing is that I network a lot less than I did when I started my practice 3 years ago and I have more clients, only because I no longer concentrated time on the networking that wasn’t working.

For me, one of the worst things that any business can have is a sense of complacency; I have spent too many years working at places that were just way too complacent in their work, where so much time was devoted to proclaiming how everybody was so wonderful and so great. If I am so complacent in a business where I think I’m so wonderful, I’m going to retire or ask someone to put me down like Old Yeller.

I don’t think any retirement plan provider can afford to be complacent. The industry is consistently changing and any change breeds more competition. Unless you’re a payroll provider TPA or one of the large consulting companies, you can’t afford to hire a top-notch marketing firm. If you’re like me, you weren’t taught marketing in school. So when I say that TPAs as a whole have lousy marketing, it’s not an insult because most professional firms have lousy marketing because of a lack of resources. Heck, most law firms have lousy marketing and there are quite a few TPAs who have excellent marketing. As a whole, it needs improvement.

So when I say that TPAs as a whole have lousy marketing, I see it less as an insult and more of a challenge for TPAs to get better at communicating with plan sponsor clients and potential clients. Just saying that a TPA can’t do much because it’s a competitive business and this is just how the business they chose to go into operates is just a lazy man’s argument.

I decided long ago that I wanted to build a national ERISA practice, to work with plan sponsors, advisors, and TPAs around the country at a flat fee. I was surrounded by an attorney leadership who thought that my way was the wrong way and that is not how a law firm operates and markets itself. Of course, I went on my own and proved them wrong. I could have sat back and just written it off as Hyman Roth did in Godfather Part II by saying that this was the business I chose. If I did that, I’d hate to think where I would be now.

TPAs can just sit back and be bitter on how the TPA business has turned into, but bitterness and complacency don’t get clients. Thinking outside the box, being bold and being creative goes a long way into getting clients. Sitting back and feeling sorry for yourself is a lot easier than doing something.

A plan provider once asked me if I had written a full-blown article on why trustee directed 401(k) plans are better than participant-directed plans. I haven’t even if I believed in it (which I do), but it’s not going to get many eyeballs because everyone has been programmed over the last 20 years to offer participant-directed plans.

Trustee directed plans are better than participant-directed plans for a variety of reasons and the number one reason is that trustees are better equipped to make investment decisions than participants, almost all of the time. While trustee directed plans are better, it reminds me of how Betamax was a better VCR than VHS. It didn’t matter because the public dictated that VHS was the better format for a variety of reasons (multiple manufacturers made VHS while only Sony made Beta and Betamax tape was only 60 minutes originally).

To be successful in this business, you need to understand what the client wants. Don’t think multiple employer plans if the public wants pooled employer plans or vice versa. You need to be flexible to make it and stubbornness doesn’t help anyone.

I use the expression “garbage in, garbage out” if an end of year census report is done incorrectly and the third party administrator (TPA) doesn’t pick up the error.

When given that census request at the beginning of the new year, you need to make sure that the information you provide is correct. When it comes to identifying employees as highly compensated and/or key employees, errors will come back to haunt you in terms of incorrect compliance testing and possibly failed required minimum distributions.

TPAs aren’t baby sitters and most will assume that then information you provide is correct, so it’s on you to be right.

I’m stubborn and there are just some things I don’t understand, so hear me out.

I got a call not too long ago from a financial advisor about my practice and how I price my work on a flat fee basis. I told the advisor that I charge $2,000 for a volume submitter retirement plan and the advisor asked me if the price differentiated if the plan had thousands of participants. I understood his question and I kind of thought it was funny because for me, drafting a plan for one person or drafting one for thousands of employees is about the same amount of work. I told him that the number of participants has no bearing on my plan document work and participant account is more interest for a third party administration (TPA) firm who has more expense in administering a retirement plan because of the number of sub-accounts they have to set up (if the plan is a defined contribution plan) or benefit statements they have to provide (for a defined benefit plan).

I’m no expert on TPAs, but I assume the only fee that may go up with an increasing plan asset size is the custody fee because regardless of the size of the plan, a plan is paying up to 6 to 8 basis points in a custody fee for a daily valued no transaction fee 401(k) platform Otherwise, there is no extra cost for a TPA to run a 100 participant, $100 million 401(k) plan than it is for a 100 participant, $10 million plan.

So I am flabbergasted by some very well known and well regarded TPA firms that still charge their administration based on assets. Having them charge on assets is not much more different than me charging for plan documents based on participant headcount. I know if it’s OK if it’s disclosed, but it still doesn’t make sense to me. Call me old fashioned, but I think a fee should be relevant to the work involved and assets bear little relation to the work of a TPA.

If you’re a closely held business or not, changes do happen. Whether it’s leadership or who serves as your plan’s trustee, change will likely happen. The problem sometimes is when the plan document has been updated to reflect who the current trustees are, yet the plan custodian doesn’t. That could certainly be a problem if one of the trustees left on acrimonious terms and wants to go to business for themselves and take a distribution that they weren’t entitled to.

So if you make a change of trustees, also make sure that your third party administrator and plan custodian know as well, so the records and signings cards are updated. Otherwise, an unhappy trustee may think it’s a 401(k) version of Supermarket Sweep.

Maybe I’m like Larry David, but I have a lot of pet peeves. I hate when people whistle or sing in public. I hate when people talk on the phone in line. I also don’t deal well with working with, working for, and being related to narcissists.

When it comes to business, I hate when a financial advisor I barely know is trying to sell me on what they’re doing and alluding that there is some referral fee out there for me.

I get clients primarily from financial advisors and third-party administrators (TPAs); I also get a bunch of clients directly from plan sponsors. I’ve always maintained a law practice of being provider-neutral and I find it unethical to collect a fee other than a legal fee. When I worked for several TPAs, some well-known ERISA attorneys collected a fee from financial advisors for referrals. Whether this arrangement was disclosed, I have no idea.

The point here is that any referral I make is not going to be attached to money in the palm of my hand.

What is old is new again. Again, the Department of Labor (DOL) is trying to unveil a new fiduciary rule.

The DOL finalized the new rule, which updates the definition of an investment advice fiduciary adopted in 1975 under the Employee Retirement Income Security Act and the Internal Revenue Code. It takes effect Sept. 23, 2024.

The DOL stated that it has also amended related prohibited transaction class exemptions, or PTEs, that are available to investment advice fiduciaries, which includes PTE 2020-02 on rollovers and 84-24 on annuities.

While the new fiduciary rule and the amendments to the PTEs are effective on Sept. 23, 2024, there is a transition period under amended PTEs 2020-02 and 84-24, which go into effect on September 23, 2025. A change in the White House in January will likely change everything.

The Department of Labor (DOL) issued a proposed information collection request (ICR) to help implement a lost-and-found database to assist former plan participants with locating missing retirement accounts.

Section 303 of the SECURE 2.0 Act of 2022 requires the DOL to create an online searchable database, to be known as the Retirement Savings Lost and Found within 2 years.

The DOL says that it initially had planned to use data that plan administrators submitted to the Internal Revenue Service (IRS) on Form 8955-SSA. However, IRS has now indicated that it will not authorize the release of this data to the DOL.

So now, the DOL is proposing to request plan administrators to voluntarily furnish the information specified in the proposed ICR.

Paychex is fighting a lawsuit by a participant claiming their distribution check was stolen in New York state court.

Wisely, Paychex is trying to move the case to Federal court since this is an ERISA matter and a federal question.

In the state case, Dylan Handy, has claimed fiduciary breach violations by a Paychex, which was third-party administrator to the retirement plan offered by Handy’s former employer, Elm Street Technology LLC.

Handy claims that checks for his entire $116,125.45 401(k) account balance was intercepted in the mail on the way to his rollover account provider, then altered and the assets deposited into someone else’s account.

Handy’s state complaint seeks damages of $383,214, plus fees, costs and interest.

Only problem is that Paychex isn’t a fiduciary.