Why Employers Should Sponsor a Retirement Plan.

There are many reasons to do it.

 

Starting and running a business is one of the hardest things out there and I know from experience in starting my own law firm. You start a business to make a living and when the need arises and when you can afford it, you need to hire employees. While employees can help grow your business, they do cost money in terms of the employer portion of Social Security, unemployment insurance, health insurance, and other benefits. One benefit that employers should offer their employees is a retirement plan and there are many good reasons why. So this article is about why employers should offer a retirement plan to their employees.

 

For the article, click here.

Only 2 Things A Retirement Plan Sponsor Needs to Limit Their Liability.
Everything else is secondary.

 

When it comes to your role as a retirement plan sponsor, outside of hiring a TPA (third party administrator), the most important plan provider that you need to hire is a financial advisor. Unfortunately, like my favorite cereal, Cheerios, there are just so many of varieties of financial advisors that it can be confusing what you should be looking for. So this article is intended to act as a guide for you as you select a financial advisor for your retirement plan or to review the incumbent advisor as part of your fiduciary responsibility.  

 

To read the article, please click here.

It isn't worth the paper it's written on.
 
When it comes to selling products and services, marketing is everything. Marketing can help push a product or service into popularity, regardless of whether it's good or not. Spuds MacKenzie was such great marketing; it made people forget how lousy Bud Light really was. I once drank Meister Brau because Norm from Cheers (George Wendt) was a spokesperson and I never drank it again. Savvy marketing can make something so utterly worthless into something that people want, even if they don't know if they really need it. The marketing by 401(k) plan providers of something called a Fiduciary Warranty is all marketing, it's something more than nothing, but not much more Believe me, Wendy's old pitch woman Clara Peller would have asked these purveyors of 401(k) Fiduciary Warranties "where's the beef/", but these warranties are more like baloney. This article is about the worthlessness of 401(k) Fiduciary Warranties and how plan sponsors should avoid relying them as a form of liability protection.
 

To read the article, please click here.

Payroll Provider TPAs and the King of Beers.
Just being popular, doesn't mean you're good. 

 

I'm a beer snob and I'm proud of it. I like the taste of beer and I'm not going to waste my time, money, and calories on a mass-produced inferior product like Budweiser, Bud Light, Coors, and Miller. I would rather drink water than their beer-flavored water. Bud Light and Budweiser are produced for the masses, Sam Adams and the other microbreweries are produced for people with taste for beer.

 

I'm also a TPA (third party administrator) snob. I believe that plan sponsors have better outcomes when they hire better TPAs. They have less administrative issues and plan designs that are more efficient.

 

For the past 4 years, I have been highly critical of payroll providers that serve as TPAs. Annually, I have written an article that has been circulated by the good TPAs and financial advisors around the country.  Other than being threatened with litigation by one payroll provider TPA (which they never pursued after threatening me to change the article, which I didn't), I have not been contacted by representatives by a [payroll provider TPA. While part of me thinks that it maybe best to ignore someone like me, the plan provider in me who wants to get better thinks it's a good idea to engage your critics.

 

So a representative of a payroll provider did contact me. He might be a lower level representative, but I give him credit for making the attempt. He suggested that he would have a higher up contact me to go over the issues that I have with payroll provider TPAs in general. Despite my criticism of them in the past, I have enough of an open mind to know that I can be wrong about payroll provider TPAs. Once again, it was proven to me that my opinion is still reasonable.

 

The representative made the typical payroll provider TPA mistake to justify why my opinion was wrong. He claimed they are one of the largest TPAs out there. The mistake is trying to equate popularity/size (number of plans they serve as TPA) with competence. That's like trying to equate Bud Light (the most popular beer in the United States) with taste.  We know that many times, the more popular product in the marketplace is not necessarily better (PCs vs. Apple Macs, VHS vs. Betamax). The fact that plan sponsors think that it's a good idea to have their plans administered by their payroll provider doesn't mean in reality that it is.

 

So a higher up contacts me with this payroll provider who is involved with the administrative side of the ball. While this payroll provider stated that they did new comparability/cross tested allocation, they do not do any work in the form of aggregated testing with a defined benefit plan (which is inconsistent what some of their salespeople have claimed when a TPA client of mine was trying to recruit one of their clients). In addition, when I told him of some of the glaring mistakes they have made and how fixing their plans through self-correction or voluntary compliance is a boon to my legal practice, there was no answer. I was just very underwhelmed that he had no explanation for these issues.

 

Again, I have an open mind and my views are not set in stone. However, the payroll provider TPA have gone out of their way not to prove my opinions are wrong. Until then, I'll continue to mount my criticism.

Let it roll, let it roll (former employees' account balances).
Let the retirement plan assets of former employees go.

 

One of the rules I live by is that I believe that you should never let someone who dislikes you be in a position where they can hurt you. Let's just say that have a former boss who should have taken that advice. That is why I'm surprised that retirement plan sponsors don't make more of an effort to entice former employees to rollover their account balance into an individual retirement account.


Former employees can be a headache; I know I have been one. When a former employee leaves, it's best to cut all ties. When it comes to a participant who is more likely to complain to the Department of Labor or sue a plan sponsor over their retirement plan, a current or former employee? I say a former employee, because of fewer repercussions.


While the distribution rules under retirement plans require a former employee's consent for distributions of $1,000 or $5,000 (depending on the plan's terms), it's a good idea to tempt them to roll over their account balance and there are a number of reasons for that. Distributing required notices is tough enough to participants at work, it's going to be more difficult to distribute notices to former employees that you may not have current addresses for. You're also less likely to offer investment education to participants who no longer toil on employer soil. Participants who receive no investment education may cause you unnecessary liability for their investment losses because they will contend they didn't receive the necessary information so that the employer could avoid liability under ERISA  �404(c).

 

Having former employees as a participant is a headache when you can't find them or when they die and they have no valid beneficiary information. Working on the human resources needs for employees is enough, why do you need the hassle for employees who no longer work for you.


In addition, having too many former employees as participants may also require you to file an audit for your Form 5500 if you hit that magic 120 number thanks to those former employees. Nothing worse than to pay an auditor $12,000 to $20,000 for an audit you may not have needed if you tried to get former participants to take their money and run.

 

When your former employee has that exit interview, make sure they understand that they have an account balance under your retirement plan and it's probably the best bet for them to take it with them and invest it any way they choose and tell them of the opportunity to roll over those assets into their new employer's 401(k) plan.

 

As Elsa in Frozen might sing: "let it roll, let it roll." Sorry, I've seen that movie 30 times in the past 3 months.

$60 million under administration by the independent 3(16) service.  
 

Four years ago this month when I said I was done with working for law firms and I was going to start my own national law firm dedicated to retirement plans where I would charge a flat fee, I'm sure people thought I'd fail.  I believed in myself and I believed that there was a market for plan sponsors and plan providers to seek out ERISA legal advice at a decent price and a price they understood.

 

I've come up with a lot of ideas in those past 4 years and some have succeeded and some have been absolute failures (that financial blog never took off). One idea, an independent ERISA �3(16) service that would be offered to plan sponsors who had no interest in offering their own �3(16) service called Austin 3(16) Fiduciary Limited is now one of those success stories.

 

With fees ranging from 3 to 10 basis points, this service has caught on as plan sponsors want to shed a lot of their fiduciary responsibility and plan providers want to offer the next big thing in the retirement plan business.

 

Launched last summer, it was a slow build, but Austin 31(16) now is the �3(16) administrator for a half dozen plans with over $60 million in assets.

 

For more information, click here for a full brochure or email me for more information.

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The Rosenbaum Law Firm Review, April 2014, Vol. 5 No. 4
The Rosenbaum Law Firm P.C.
ary@therosenbaumlawfirm.com
734 Franklin Avenue, Suite 302

Garden City, New York 11530

 

Phone 516-594-1557 

Fax 516-368-3780    

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