Retirement Plan Advisors Advantage

Another 12 Basic Retirement Plan Concepts That Every Financial Advisor Should Understand.

More concepts about retirement plans that a financial advisor should understand.

As stated in my original article on retirement concepts that advisors should understand, financial advisors have enough on their plate. However they should be aware of some very basic concepts on how the industry works in order to stand out among their competition as well as augmenting their client's overall retirement plan experience. It is my belief that better educated retirement plan advisors will help create better retirement plans. This is why my law practice is heavily concentrated on helping advisors with their current and potential retirement plan clients. Hopefully, this article will further help retirement plan advisors understand some more basic retirement plan concepts that can help them develop and maintain their retirement plan book of business.

To read this article, click here.

For the original article and the first 12 concepts, click here.

DOL Fee Disclosure Delayed.

Section 408(b)(2) regulations delayed to July 1, participant disclosures to September 1.

Plan sponsors will now have until July 1 to meet the much-discussed Section 408(b)(2) regulations on 401(k) fee disclosure, following Department of Labor announcement on the final rule.

The three-month extension of the final date was issued to give sponsors and administrators extra time to effectively prepare for a new level of transparency in the 401(k) market.

The final rule does make some changes over the original interim rule, these changes include:

1.There will be an increase in the information that must be disclosed relating to any indirect compensation received by a plan provider to include a description of the arrangement made between the payer of the indirect compensation and the service provider.

2. The final rule revised the investment-related information that must be disclosed by providers of fiduciary services to an investment contract, product or entity that holds plan assets and in which the plan has a direct equity investment to provide consistency for parties that are also required to comply with the DOL's participant-level disclosure regulation under ERISA Section 404(a).
3. The final rule changed the deadline for disclosures of changes to investment-related information so that providers may disclose all such changes on an annual basis instead of being required to separately disclose each change within 60 days of the date the provider knows of the change.
4. The final rule revised the deadline for providing related reporting and disclosure information to responsible plan fiduciaries to coordinate with the date the plan intends to comply with ERISA's general reporting and disclosure requirements, rather than the prior requirement to provide this information upon request.
5. It clarified that any errors or omissions made by the plan provider in disclosures of changes to previously disclosed information can be corrected within 30 days of the date the provider knows of the errors or omissions.
6. The final rule requires any plan provider that provides record-keeping services to include a detailed explanation of the record-keeping services provided to the plan and the cost of those services.

7. It added an optional "summary guide" to assist fiduciaries with their review of required disclosures.

8. Providers of record-keeping or brokerage services required to provide investment-related information are now permitted to comply with the regulations by providing information from the investment issuer's current disclosure materials, provided the issuer is one of the regulated entities described in the regulations.

As I conduct further review of the new rules, I will provide further guidance.

The One Plan Deadline that scares me.

Plan sponsors are unaware of their obligations in disclosures to participants.

All plan providers are hurrying to meet the July 1 deadline of providing fee disclosures to plan sponsors (cheap plug, I am still available to draft client service agreements to comply with 408(b)(2) for $1,000). The deadline doesn't look like it's going to be extended after so many delays.

The July 1 (pushed back from April 1) deadline may be scary for some, but there is one other deadline that scares me a lot more and no one is talking about it. It is 60 days later and the people have to provide it, don't even know about it.

While the onus is on plan providers to make the disclosures to the plan sponsor on July 1, the onus shifts to plan sponsors for the plan participant Section 404(a)(5) disclosures by September 1. While plan providers will help plan sponsors out with the information to complete these, I'm sure that there will be some that won't. It's just human nature to understand that if there is a mandatory compliance, a few providers will either ignore it or claim that it doesn't apply to them.

While plan sponsors are on the hook if they don't get the 408(b)(2) plan disclosures, there is a way out from liability if they don't. They don't have the same luxury with the 404(a)(5) disclosures, it's fully on them to get it done and make sure their plan providers are ready to help.

So while 408(b)(2) is all the rage these days, the Section 404(a)(5) regulation scares me more because while I have faith in the retirement plan industry, too many plan sponsors are like deer in the headlights and don't have the right providers telling them of their duty by September 1.

Benchmarking your providers and blind faith.

Why some in the industry are trying to push back the 401(k) disclosure regulation effective date.

I had a contractor work on my house for a couple of projects. Frank installed a new front door, installed a garage, re-did the sheet rocking of a few rooms, and installed a new kitchen. We thought he was dependable and would never believe that he would take advantage of us.

As part of a mold remediation, we had to sheetrock the den. I thought the job was about $9,000 to $10,000. Frank wanted $14,000. I thought it was high, we found another contractor who would do it for $9,000. We would never know we were paying too much unless we benchmarked Frank's proposed fee. Who knows how much we overpaid on the other projects?

Competing plan providers hear it all the time from prospective clients all the time, how their current provider would never overcharge them. Unless a plan sponsor benchmarks the fee they are being charged (which is their fiduciary duty to do so), how will they ever know?

Benchmarking the fees you are being charged is not about the lack of trust in your providers, just exercising their fiduciary duty. It's OK to have faith in your providers, but not blind faith.

Overpaying Frank was our mistake and we're out money, overpaying your plan providers is a breach of fiduciary duty and possible liability from plan participants.

Fee disclosure is only one piece to the puzzle.

While plan sponsors may get fee disclosure in July, they have to do something with it.

While some may claim that fee disclosure that will come for retirement plan sponsors on July 1, 2012 from Section 408(b)(2) regulations will be a breath of fresh air for the retirement plan industry, the cynics in me will say that it will have very little effect. The reason? It's useless if the plan sponsor doesn't benchmark the fees they are charged.

A plan provider can still include inflated charges like a custody fee on steroids of 20 basis points with the hope that plan sponsors will accept those fees as a grain of salt since most plan sponsors won't exercise their fiduciary duty by benchmarking their fees.

Fee disclosures will tell plan sponsors what their fees, but it won't tell them whether the fees are reasonable or whether they are reasonable for the services provided. Disclosure is only on piece of the puzzle, it's up to the plan sponsor to figure out the rest of the puzzle on their own.

Introducing a new financial blog and you're invited to write

The brains behind celebritycafe.com introduce financerific.com, edited by yours truly.

People ask me all the time how I built my practice and it's certainly not because of my looks. Thanks to a suggestion by Mike Alfred from Brightscope, I started to write on LinkedIn, write my own blog, and post my articles on JDsupra.com.

Providing good online content without the obnoxious commercialization is social media and social media has been able to build my practice on a national level. It has allowed me to stand out among other ERISA attorneys and I suggest anyone who can (as long as their compliance department allows it) to contribute.

I have partnered with the folks behind celebritycafe.com (a well trafficked entertainment news website) to launch financerific.com, which is a blog devoted to financial news, advice, and all things business.

So if you are a financial advisor, a TPA, an accountant, a business attorney, a real estate attorney, or an estate planning attorney, please consider contributing. It's a great way to put out good financial related content which can only raise your profile and help with SEO (search engine optimization).

To register to write, click here. Once you register, throw me a line and I will give you the free access to contribute.

The Rosenbaum Law Firm Advisors Advantage, February 2012
Vol. 3 No. 2
The Rosenbaum Law Firm P.C.

734 Franklin Avenue, Suite 302
Garden City, New York 11530
516-594-1557

Fax 516-368-3780

ary@therosenbaumlawfirm.com

www.therosenbaumlawfirm.com