The Law Firm Review

by Ary Rosenbaum

Bottom Line: This is what Retirement Plan Sponsors Need To Do.

No fluff, just the stuff.

My great Uncle Jack Urbinder passed away a few weeks back at age 88. He was my Grand- mother's only brother (out of 3) who survived the Holocaust. Much like my grandmother, Uncle Jack was genuine and he told it as he saw it. He was a sweet man who also once proclaimed that he would only provide a gift if he was invited to a party (which is a rule I follow). Uncle Jack didn't beat around the bush because he never minced any words. Unlike some of my other articles, this will invoke his spirit by being plain and upfront. Instead of citing lines from the move Airplane!, Caddyshack, and Fletch, this article is what 401(k) plan sponsors need to know to keep themselves out of trouble.


For the article, click here.

ERISA Fiduciaries: Making Sense of All The Numbers.
There is a difference between the numbers.

In the Golden Age of Boxing, there was one world champion. Whether it was Joe Louis or Rocky Marciano as the heavyweight kingpin or Sugar Ray Robinson as middleweight crown holder, you knew who was champion. There was one sanctioning organization called the National Boxing Association (NBA), so there was one champion for each weight class. The NBA became the World Boxing Association (WBA). Then the World Boxing Council (WBC) was formed with its own champions. Years later, the International Boxing Federation (IBF) and the World Boxing Organization (WBO) had their own champions as well. Apparently there is also the IBU, IBA, and WBF. It's starting to become an alphabet soup of boxing champions. I'm sure plan sponsors feel the same way of plan sponsors offering their services as independent ERISA fiduciaries. Most plan sponsors don't know the difference between an ERISA §3(16), ERISA §3(21), and ERISA §3(38) fiduciary, it becomes a number soup of its own, So this article is going to break down what a fiduciary is and what these fiduciary number actually means.  


To read the article, please click here.

There are many.
To me, there is no greater television show than Seinfeld because it's timeless and there is something about each episode that reminds you of normal day life. In the reverse chronology episode set in India called "The Betrayal", George Costanza is made at Jerry for nearly the entire episode because he found out (Elaine can't hold her liquor) that Jerry had a relationship with the woman Jerry had introduced to him named Nina. George keeps on telling Jerry "You can stuff your sorries in a sack, mister." Of course, Jerry said he still didn't know what it means. Like sorries in a sack, I am convinced that retirement plan sponsors still don't understand their responsibilities when it comes to the fee disclosure regulations. So this article is about some of the major misconceptions that plan sponsors may have concerning the fee disclosure regulations and what plan sponsors really need to know.

To read the article, please click here.

Plan sponsors need to learn the art of delegation.
Handle what you can handle and delegate what you can't. 

I prepare my own income taxes because my tax LLM degree and years working on ProSeries gave me the experience to effectively do that. When it comes to treating my allergies, I delegate that role to the person with the medical background to handle that. I delegate the things that I can't handle and keep the things I can handle in-house.


Yet it is amazing how many plan sponsors don't understand the art of delegation and how delegating some or most of their duties to retirement plan providers who have the background and training to do a better job than the plan sponsor ever can. Whether that provider is a third party administrator, ERISA §3(16), ERISA §3(21), or ERISA §3(38) fiduciary, plan sponsors need to know that there are capable plan providers than can alleviate some of the liability risks that they run by handling some of these roles as a plan fiduciary themselves.


The reason that plan sponsors don't understand the art of delegation is because they really don't understand their role and liability as a plan sponsor. They don't understand their duties and how they have to act prudently in paying reasonable fees and checking on the current plan providers they have in place.


They also may be surrounded by plan providers that thrive in business because their clients don't know much about what these plan provider aren't doing and should be doing. Heck, I'll never forget the law firm I was a law clerk at during my LLM year in Boston. There was this paralegal who was told in her review how wonderful she was until she got fired a week later. Some plan providers laud the plan sponsor because they don't want to tip them off that there aren't doing their job very well.


This is not to say that plan sponsors should hired all these numbered ERISA fiduciaries because there are plan sponsors out there who understand their role and handle it effectively.

The issue here is that plan sponsors need to identify their role as plan sponsors and gauge themselves whether they can handle it all and delegate the duties that they can't. It's hard to be honest with yourself at times, but a plan sponsor has the fiduciary duty to be honest with themselves and identify what they can do as a plan sponsors and what a retirement plan professional needs to handle. It's that simple.

New Fiduciary Rule Delayed.
Hold your breath until at least 2015, then maybe exhale.

When I was a freshman at Stony Brook, there was a shooting on campus as a rap concert when this rapper Special Ed didn't want to perform after arriving at 2 am for a show that was supposed to start at midnight. The problem was that Stony Brook University police officers weren't armed. They would have to wait for Suffolk County police officers to show up at the campus entrance.


So the University President John Marburger decided that it was the time after this concert to figure out whether campus police officers should be final armed. It took Marburger two years to decide to arm the police.


For someone who was just involved in student politics, I didn't understand what took so long. I wasn't old enough to understand the political implications that required Marburger to finally make a decision and the reasons why it took him so long. There is such much back and forth on how decisions are made and a good chunk of the time, money talks.


The Department of Labor (DOL) just announced that they were delaying the implementation of a new fiduciary rule for retirement plans and individual retirement accounts. They claim it will be released in 2015.  How many years it will take to be finally implemented, they didn't say.


What is taking so long? A lot of pressure and a lot of money. The pressure is coming from Congress and Wall Street groups that don't want brokers to be treated as fiduciaries. The money is coming from Wall Street groups to the coffers of Congressmen who don't want the DOL to implement a rule. Heck, Wall Street groups are even creating dubious reports that plan sponsors will ditch their retirement plans if the fiduciary rule is changed. They said the same thing about fee disclosure and we saw how that didn't happen.


It's politics and the DOL has to walk a tightrope between competing interests to develop a rule that will serve as a compromise that neither side will be happy about, but those folks don't have the political pressure that the DOL has been weathering for years with the new fiduciary rule and fee disclosure regulations.

While reasonable people can easily make decisions, there is nothing reasonable when it comes to anything coming out of Washington D.C.

Some providers want to change from their bad ways.  

One of my favorite genres is the Western.  While I prefer the works of Sergio Leone and Clint Eastwood to those of John Ford and John Wayne, I have always been a big fan of these films. I always like the idea that the good guys wore white hats and the bad guys wore the black hats.

Of course, my favorite Western, Unforgiven, shakes all that up because the people wearing the white hats aren't necessarily that good (Gene Hackman's Little Bill) and the people wearing the black hats aren't necessarily that bad (Clint Eastwood's Will Munny).


When I talk to advisors and third party administrators who do terrific jobs at fully, transparent fees, I always state: "that since we all wear white hats, we all should stick together."

The problem is that with fee disclosure, there are a lot of folks wearing what I call gray hats. Gray hats meaning that these were former black hatters either trying to reform the way they handle the retirement plan business or those pretending that they are one of the good guys.

That may mean providers that were always hiding fees or were just too expensive offering "fiduciary services" like a fiduciary warranty or the use of an ERISA 3(38) service through a third party.  Perhaps these providers have seen the error of their way and are now going to be good retirement plan industry "citizens", and maybe they haven't and this is some marketing gimmick. How will plan sponsors know the difference?


We live in a Google world, which means things are certainly more transparent. So if a financial advisor writes an article on an RIA website telling advisors how to get their clients out of fiduciary trouble, Google will let you know that this fellow doesn't have a sterling reputation and he was accused of some of the things he was warning against which landed plan sponsors in fiduciary trouble.  I believe that people and plan providers have it within themselves to change and improve their services and business model, but it must be judged by deeds and not by words or articles or fancy pamphlets.


If I'm a plan sponsor, I need to do my due diligence on the providers I'm considering. However, would I be better off with providers who practices full transparency before it was fashionable and required, or to do I hire a provider that had a poor reputation in this industry who is trying to change their ways and not try to acknowledge their past? Despite Unforgiven, I feel safer with the folks in white hats.


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

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