The Rosenbaum Law Firm Review - July 2014

by Ary Rosenbaum
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How Plan Sponsors Can "Reboot" and Improve Their 401(k) Plan.

Forget about Roger Moore as Bond.

In movies and television, a reboot is a mechanism to discard all previous continuity in a series and start anew with fresh ideas. So all established fictive history is irrelevant to the new storyline, and the series is started over as if it's brand new. So reboots are attempts to rescue franchises that have grown "stale". The Daniel Craig James Bond movies can make us all forget Roger Moore in space in Moonraker and Pierce Brosnan's invisible car in Die Another Day. The Christopher Nolan Batman Trilogy certainly made us all forget George Clooney's nippled bat suit in Batman and Robin. However, in my mind, only Jack Lord can play Steve McGarrett in Hawaii Five-O. When it comes to 401(k) plans, plan sponsors can reinvigorate their retirement plan by revamping or "rebooting" it through new options that could improve how it operates as an employee benefit. So this article is how about plan sponsor can improve their 401(k) plan through a "reboot".

 

For the article, click here.

 
Plan Sponsor Should Avoid These Retirement Plan Provider "Con Games".
Scams you should watch out for.

The George Clooney-Brad Pitt trilogy of heist films known as Ocean's Eleven, Ocean's Twelve, and Ocean's Thirteen were remembered for their twist endings, stylish pacing, and lightheartedness. Since the Ocean gang were con-men, it did introduce us to the con game jargon like using a Boesky (a wealthy bankroller with insider info); a Jim Brown (confrontation between two people, to distract lifting info); an Ella Fitzgerald (tape looped back to look like a live recording); a Bundle of Joy (pregnant woman) and a Billy Martin (a second chance). A con game is a confidence trick, which is an attempt to defraud a person or group by gaining their confidence. In the retirement plan industry, there is jargon that acts like a confidence trick because it tricks plan sponsors into using a service based on what is a con game without the criminal intent because retirement plan providers eliminate the criminal intent by having plan sponsors sign off on disclosures that plan sponsors won't read. So this article is an introduction to terms and services in the retirement plan industry that plan providers may try to trick you into using that either does not provide what you believe it promises or it's a little short on detail on what it really is.  

 

To read the article, please click here.

Never a good idea to use your payroll provider as a TPA.
I stick to what I know, so I venture very little outside the retirement plan space. I do that because I believe it is less likely to cause trouble. The two largest payroll providers don't follow that philosophy -- they are also two of the biggest 401(k) third party administrators ("TPAs") in the country. While it may look good on paper to hire a payroll provider as a 401(k) TPA, it's actually a terrible idea, and this article will tell you why.

To read the article, please click here.

 
It's always the plan sponsor's fault.
No matter what, they are to blame.

Seven years ago, I was asked to look at a $25 million 401(k) plan that was in complete disarray and I was flabbergasted because it belonged to a law firm that claimed to have an ERISA practice. There was no financial advisor on the plan, no investment policy statement, no education to plan participants, and it didn't seem that the investment lineup for the plan has been changed since the go-go days of the 1990s.

 

The two trustees followed most of the path that I set up for them except for the fact that they didn't pick a financial advisor among the pool I recommended to interview. What was rather insulting to me is that I was not consulted about their process in selecting a new third party administrator (TPA) until it was already done and I was disappointed that they selected a bundled provider without considering someone unbundled for a plan that size.

 

Fast forward 7 years and I get a call from an accountant that this plan is going through a lot of trouble. There was an issue with them owing over $100,000 in contributions, which was odd to hear since the plan was using new comparability and safe harbor. Well, my services were not requested because one of the trustees is still mad that I made her a punch line for the past 4 years in my articles and in my book. I understand people having thin skins and not enjoying my barbs, but the fact is that the reason that the plan has always had issues is because of her and the other trustee who don't seem to fully understand the grasp of their role as the decision makers of the Plan.

 

I'm sure she didn't want to hear the "I told you so line" from me, but ultimately the plan sponsors are at fault for about 100% of the problems they may have with their retirement plan. The plan sponsor goofs and forgets to include people in their plan,; it's their fault. The TPA does the same; it's still the plan sponsor's fault because they hired that TPA.

 

We live in a world where no one has any responsibility, it's always someone else's fault. We see that in politics all the time, you can be office for two terms and it's still the fault of the guy before you. Well I'm telling you that when it comes to retirement plan sponsors and the fiduciary responsibility, it's always their fault.

 

I don't know how the law firm will correct these errors, but I'm sure the legal fee they are paying is far greater than what I'd charge. What is still amazing is that that these two plan trustees are still the trustees, especially since the woman who dislikes me also happens to be that law firm's human resources director. To properly manage a 401(k) plan is usually a human resources function. I'm sure in that law firm; associate attorneys have been fired for less. Actually, I know for a fact that they have been fired for less and some of these associate attorneys end up becoming household names in their legal field. But that's another story for another day.

Retirement plans aren't paint by numbers.
One size doesn't fit all.

I grew up in the 1970's and 1980's, so many of the toys I had are a little quaint when you see the toys of today. I had Star Wars figures, but outside of Luke, Leia, Chewbacca, and C3P0, I always had those characters that were in the movie for five seconds. Speaking of toys, one toy that is forgotten wasn't a toy, but an art project. That is paint by numbers.

 

Too often, many financial advisors take a paint by numbers approach when it comes to the retirement plan needs of their clients. The not so good financial advisors will look at a plan sponsor's retirement plan needs and think 401(k) plan with a comp to comp allocation will work all the time. The excellent financial advisor will consult with a retirement plan advisor at a full service third party administration (TPA) firm or an ERISA attorney and determine which specific plan design works best for the plan sponsor and the needs of all the employees. That may take the form of a 401(k) plan with a comp to comp allocation, but sometimes it may not. Sometimes, a new comparability plan design with a 3% non-elective safe harbor contribution works best. Sometimes a cash balance plan or a floor offset works best.

 

As with my complaint with some of the bundled and payroll provider TPAs, all retirement plans don't fit within the small boxes that their administration and plan document permits. Sometimes, the best design for plan sponsors fall outside the boxes and into the hands of an unbundled, full service TPA. It takes the good financial advisor to know when to ask for help in plan design, otherwise the plan sponsor and their highly compensated employees may be living money on the table.

Please support my latest fundraiser.  

I always hate to ask for money, but I will when it comes to something I like. I really like the synagogue I attend called Congregation B'nai Sholom-Beth David in Rockville Centre, Long Island. Since they need a couple of shekels, I have organized a comedy show featuring Sunda Croonquist, a great comedienne who has appeared on The View, Jerry Lewis MDA Telethon, and her own show on Jewish Life TV called "James and Sunda". If you can attend the event, you will have a great time on August 10th. If you can't attend, please consider contributing towards the event. All gifts are tax deductible.

 

To buy tickets or to contribute, please click  here.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ary Rosenbaum, The Rosenbaum Law Firm P.C. | Attorney Advertising

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