Advisors Should Care About Plan Design

by Ary Rosenbaum

The Rosenbaum Law Firm P.C.

In sports and in business, you are only as good as the team that you are on. I have been on some good teams and not so good teams, so I know that sometimes I was only as good as an ERISA attorney if my fellow employees were good as well.

So I am often surprised how financial advisors are not conscious of the team they need to help their clients or are very ho-hum about the team they select.

While financial advisors don’t need to become experts in retirement plan design and administration, I believe that the changes in the retirement plan business requires financial advisors to have more of a background in retirement plan issues. So while financial advisors don’t have the time to learn about plan design or fiduciary liability issues, they need to work with the experts that do such as a third party administration (TPA) firm and an ERISA attorney.

A big part of my practice is working with financial advisors (for free) in developing a team approach in working with their clients and potential clients. That approach always requires the use of a good TPA and the use of a TPA will depend on location, cost, plan type, and plan size.

Plan sponsors and their financial advisors for the most part; don’t know the value of a good TPA until they replace a bad TPA. A good TPA will administer and record keep the plan correctly, which will eliminate potential fiduciary liability and plan sanction/disqualification. In addition, the most important function of a good TPA is plan design. Plan design to me is an art, or a game like Chess. It’s also like logic in 9th grade math. Too often, a payroll provider or a bundled provider or the not so good unbundled TPAs treat retirement plans as if they came off an assembly line.

In my mind, there is no cookie cutter approach to retirement plans in their design and in their plan documents. Every plan sponsors has different employee populations, needs, and financial resources. An ERISA attorney and/or a good TPA will sit down with the client review their needs for a new plan or to improve an existing plan. Based on the information collected, the ERISA attorney and/ or the TPA will develop a retirement plan design that will fit the needs of that specific client. That design may be a safe harbor plan, new comparability plan design, or the use of another plan like a defined benefit plan or a cash balance plan. Through 13 years in the business, I have seen retirement plans maximize contributions for their employees and/or correct administrative errors by the use of a good TPA.

I have had a client for 8 years now and it was as a result of a meeting that a financial advisor brought me in for, for a potential client he was trying to recruit. The plan was being administered by a payroll company. The plan failed the deferral and matching discrimination tests by a wide margin. The owner of the company was getting a refund of $10,500 of her $12,000 deferral at that time. A review of the test by the payroll TPA was that the plan could have corrected the failed discrimination test by adding a $7,500 qualified non-elective contribution.  Even though it was there on the testing information, no one bothered to highlight to that company. Needless to say, the client paid the $7,500 corrective contribution, avoided all the refunds to the highly compensated employees, and implemented a safe harbor plan design the very next year, This client has been the client of the financial advisor and myself ever since (she thinks we are geniuses) because of this team approach.

I have seen financial advisors grow business with the use of a good TPA and I have seen advisors lose business because of referring clients to a bad one. Like I said, you are only as good as your team, so finding the right ERISA attorney and TPA is beneficial for helping a financial advisor grown and retain their business.

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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Ary Rosenbaum

The Rosenbaum Law Firm P.C. on:

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