The Fed Agencies Strike Back. The Department of Labor and Securities and Exchange Commission pick up the 401(k) reform ball, dropped by Congress.
While Congress apparently sided with the mutual fund industry by failing to enact 401(k) fee disclosure, regulatory agencies apparently didn't forget retirement plan participants.
The Department of Labor implemented regulations that will require full fee disclosure to plan sponsors. The new rules will require registered representatives, investment advisers and others who work with 401(k) plan sponsors to provide detailed overviews of their services and compensation, as well as declare whether they are acting as fiduciaries. All service providers, will have to disclose all fees in a consistent manner, including those arising from record-keeping services. These rules will not be implemented until July 2011.

The Securities and Exchange Commission (SEC) has proposed rulesDarth Vader that will change the way target date funds are used and marketed. While target date funds are differentiated by a year to signify when an investor will hit normal retirement age like a 2015 fund (which should be more slighted to fixed income investments), there was no regulated criteria to differentiate it from a 2025 fund or 2040 fund. While 401(k) participants in a 2015 fund thought that their fund was geared more to fix income lost an average of 24% in 2008 while the full range of 2015 funds lost anywhere from 9% to 41% in that same year. The new rules would require fund providers to be more explicit about how its asset allocation changes over time. The new rules also would require marketing materials to state that a target date fund isn't guaranteed and shouldn't be selected solely on the basis of the investor's age, tax bracket or expected retirement date.
The SEC has also proposed to revamp 12(b)(1) fees for mutual funds. Since 1980, the SEC has allowed mutual funds to pay for some or all of the services that third-party financial advisers provide through so-called "12b-1 fees," which are deducted from fund assets over time. While 12(b)(1) fees were intended to be used for marketing costs to increase the size of the funds, most investors don't understand what they are used for and they were effectively a hidden sales charge. The proposal would restrict ongoing sales charges to the highest fee charged by the fund for shares that have no ongoing sales charge. So if one class of the fund charges a 4% front-end sales charge, another class could not charge more than 4% in total to investors over time. In English, it means mutual fund investors (especially 401(k) participants) should pay less in fees.
If all these regulations and proposed rules are implemented, we believe that 401(k) fees will be transparent to plan sponsors and investment choices made more clear to participants, which will limit their liability from lawsuits by 401(k) participants.
You do get what you pay for. Using non-attorneys to draft plan documents can cost you.
We were recently hired by a leading Long Island company to assist them on an Internal Revenue Service (IRS) audit of their 401(k) Plan. Upon review of the contributions made to the Plan and the Plan document, the IRS agent determined that the matching contribution was done incorrectly.
The Third Party Administration (TPA) firm handling the Plan vehemently disagreed. Upon review, we determined that the TPA was wrong and the IRS agent was right. While the company was making the matching contribution to employees on a payroll basis, the Plan documents stated that the allocation is made annually. This creates a discrepancy because plan participants can change the amount of their salary deferral multiple times during the year and matching contributions are tied to the deferral. This discrepancy requires the Plan sponsor to make a true up contribution, so that the matching contribution equals the annual allocation formula set forth in the Plan. The TPA didn't make the true up, so now the company has to make it up including extra amounts to adjust for interest for the late payment.
The TPA claimed that this error was the fault of the Plan document. The problem was that the TPA drafted the Plan. This TPA has no ERISA attorney on staff or a paralegal or an actuary. Who drafted the Plan document? Obviously someone without the background to know what they are doing.
While people question the cost of an ERISA attorney, remember that retirement plan documents are legal documents. Would you want a retirement plan administrator drafting plan documents? Would you want your doctor drafting your living will or your broker drafting your estate plan?
Plan documents should be drafted by ERISA attorneys, they have the background to know how retirement plans should operate, according to law.
Making a name, coast to coast. Ary Rosenbaum featured as 401(k) expert in Wall Street Journal.
Since starting his own practice in April, Ary Rosenbaum has quickly become a leading expert in 401(k) plans nationally. Ary was featured as an expert on the use of target date funds in the July 16th issue of the Pittsburgh News-Gazette, which you can see here.
Wall Street JournalOn August 2nd (which is the date this newsletter was e-mailed), Ary was quoted concerning his views of the use of exchange traded funds in 401(k) plans in the Wall Street Journal, which you can see here.
Since April, Ary has been quoted in Long Island Business News, Marketwatch.com, Fiduciary News, DailyFinance.com, the Pittsburgh News-Gazette, and the Wall Street Journal.
Welcome to NYC, Kravitz.
California TPA opens up New York sales office.
California is known for a great many things like In N' Out Burger. Unlike In N' Out Burger which refused to budge from the Western United States, Kravitz has opened up a presence in New York.

Kravitz is a leading independent third party administration firm (TPA) fromcarlos California that handles all types of retirement plans and is a specialist of Cash Balance Plans. A Cash Balance plan is a defined benefit plan that specifies both the contribution to be credited to each participant and the investment earnings to be credited based on those contributions. These plans have been highly desired by professional firms such as law firms and medical practices.
Leading the New York office is Carlos Tariche, a great friend in the TPA industry from his days at CBIZ Retirement Services, Inc. and Chernoff Diamond. Carlos can be reached at 212-201-1420.
Carlos will be a speaker, along with Ary Rosenbaum at the Hackensack, New Jersey 401(k) Rekon event on August 26, 2010. Check 401(k) Rekon for information.
Giving Back to the Brook. Join us for our networking event to benefit Stony Brook University Political Science Department on August 18th.
As many of you are aware, Stony Brook University is one of 3 schools that Ary Rosenbaum graduated from and it's the one school that is near and dear to his heart. That is why he's giving back to the place where it all began.
So please join Political Science Alum, Ary Rosenbaum, '94 on Wednesday, August 18th from 6 to 8 pm at the Brook Alumni Room at the Wang Center at Stony Brook University tStony Brooko Meet & Greet the Political Science members of the faculty. This will be a fund-raiser event for the Political Science Department and an opportunity to network with your alumni colleagues and friends of the Political Science Department. RSVP, call 631-632-4995.

Admission is only $10 a person with food served, cash bar. Please join us for what is going to be a great night of networking.
It Starts With One. Proud to be contributor to a new website, launching soon .
Ary Rosenbaum and The Rosenbaum Law Firm P.C. is proud to be associated with a future website, geared towards small business retirement plans called One Person Plan. While the website will be devoted to plans of all sizes, OnePersonPlan.com is called that because we believe that a retirement plan can start with one person because many small businesses mistakenly believe that retirement plans are for larger businesses only.
This advertiser supported site (developed by the folks at 516ads.com) will contains advice from accountants, financial advisors, third party administrators, and the "most dangerous" ERISA attorney in the country, Ary Rosenbaum.
For those interested in affordable advertising/blogging opportunities on the site, call 516ads.com at 516-547-4018 or Ary Rosenbaum at 516-594-1557.
Launch of the website will be announced in the near future. You have been warned.
Find us on Facebook
Follow us on Twitter
View our profile on LinkedIn
The Rosenbaum Law Firm Review, August 2010, Vol. 1, No. 4
The Rosenbaum Law Firm P.C.
734 Franklin Avenue, Suite 302
Garden City, New York 11530
Attorney Advertising. Prior results do not guarantee similar results. Copyright 2010, The Rosenbaum Law Firm P.C. All rights reserved.