A Simple Q&A for Retirement Plan Providers.

Some simple questions and simple answers.

When I was an associate at a semi-prestigious Long Island law firm, the goal was that I would start a national single employer retirement plan practice. I couldn't have my articles published because the marketing department was overworked by the law firm administrator who wanted to publish his articles (that drew no money) and I had law firm partners who had no interest in expanding their wallet by cross selling my services to their clients. So I thought I could jumpstart this national ERISA practice by helping advisors and third party administrators (TPAs) with their clients and their practice that would create goodwill and good referrals for my services. To get the whole story, pick up a copy of my e-book (coming soon to a Kindle near you). As part of my practice, I have an open phone policy with advisors and TPAs where I help them with their questions about their clients and their practice. I get asked a straight question and I'll give them a straight answer. So this article is an answer to the questions I usually get from advisors and TPAs. 

To read the article, please click here.

Two trains of thought for the new Financial Advisor regarding the Plan's TPA.

What you might do when you get a new client with an existing plan.


One of my least favorite sayings is : "if it ain't broken, don't fix it." I detest it because it suggests complacency of something that is mediocre. It kind of reminds me of when New York City Mayor Ed Koch was running an ill-fated campaign for a fourth term in 1989 and Governor Mario Cuomo said Koch was as comfortable to the voters as an "old jalopy." It doesn't sound like such a ringing endorsement.


One favorite saying of mine is: "change for the sake of change." That means that sometimes people change just for the sake of change, regardless of whether it makes sense or not.

What does it have to do with retirement plans? I guess like Karnik the Magnificent, I'll open up the envelope and if it ain't broken, don't fix it or change for the sake of change are two trains of thought for a financial advisor who gets a new plan sponsor client as it relates to the retention of the plan's third party administrator (TPA).


Too often, a plan's new financial advisor just changes the TPA for the sake of change or for the sake of getting them paid easier. Any change of TPA has to be what's best for the client such as paying a more reasonable fee or replacing an ineffective TPA. However, I've seen too many TPA changes that are done just for change's sake and that gives short shrift to the needs of the plan sponsor, especially when the new TPA is a payroll provider.


Again, I hate the if it ain't broken, don't fix it. I'll spare my dislike to reiterate something that I have said repeatedly since I started my own law practice: good TPAs are hard to come by. If the TPA is doing a good job at a great price, keep them. There have been too many horror stories of plan sponsors changing TPAs to save a few nickels or to get the advisor easier access to their pay.


So if you're a financial advisor, the retention or replacement of the TPA is what's best for the client and not you. When you put your needs behind the client's, you tend to a better job.

And still the #1 issue with 401(k) Plans.

It's not plan expenses.


The fixation and discussion about plan expenses usually flares up when the stock market isn't doing well. Two major corrections within a 10-year period (2000-2010) made fee disclosure regulations inevitable.  With the way the market is going in 2014, we maybe headed toward another correction.


While the discussion about fees has had a positive effect on the retirement plan industry, it's still not the greatest issue that has been left unresolved. While fees have gone down since the regulations have been implemented and plan sponsors have become cognizant of their need to pay only reasonable plan expenses, the biggest issue is still not talked about.


The issue? The fact that most participants in a participant directed 401(k) plan don't have the requisite knowledge and background in order to make informed investment decisions.  Too many 401(k) plans don't offer plan participants enough investment education to make informed decisions and only a small amount of plans offer investment advice.

Giving plan participants the choice of investments to make and having an investment policy statement with a regular review of investment options is only half the battle to limit liability under ERISA �404(c).


Financial advisors along with plan sponsors need to make sure that plan participants have the right tools to make informed decisions. With apologies to my old law firm's h.r. director, handing out a bunch of Moriningstar profiles isn't going to do it. Plan participants at the very least, need some investment education that talks about the general rules of investing. The ideal approach is to make sure plan participants get investment advice, whether provided by the financial advisor (by abiding with the investment advice regulations) or provided by a third party (such as rj20.com).


While this industry had done a decent job with lowering and disclosing plan expenses, it needs to do more to make sure that plan participants get enough information to make informed investment decisions.

Make sure your Plan Service is more than just a typical gimmick.

Make sure it's actually more than window dressing and something a plan sponsor could use.


A year or so ago, a good friend of mine who is an ERISA �3(38) fiduciary won a case from a disgruntled broker who claimed that all 3(38) services was just marketing. A 3(38) fiduciary that does a competent job and assumes discretionary control over the plan's fiduciary process is more than marketing. But it's a gimmick.


Hear me out, every service and every feature that a plan provider advertises is a gimmick. Now, there is nothing wrong with being a gimmick as long as there is some substance behind that service or feature. A gimmick is a special feature that makes something "stand out" from its contemporaries. However, the special feature is typically thought to be of little relevance or use. If you offer a service or feature that other plan providers don't offer, just make sure the gimmick is something that plan sponsors could use. A fiduciary warranty that offers a plan sponsor absolutely zero protection is a gimmick with a feature that has no use. A good ERISA fiduciary offering substantive �3(16) 0r 3(38) services are offering a gimmick with a feature that plan sponsors could actually use.


My flat fee approach to billing my clients is a gimmick, but it's substantive because my clients have cost certainty rather than the billable hour approach that never seems to have any cap or limit.


The point is that any feature or service that you will use will allow you to stand out among the crowd, just make sure that the gimmick has some substance, so your client doesn't ask like Clara Peller in those Wendy commercial as to "where's the beef?"

MyRA: A nice idea, but it won't become popular.

Nice idea by Obama, but not likely to get much interest.


Regardless of which side of the political aisle created it, I like any product or plan that allows rank and file employees to save for retirement.


President Obama made good on his State of the Union speech promise by ordering the Treasury Department to create a new retirement savings vehicle called, MyRA.


The accounts - which are intended for people whose employer has not sponsored a retirement plan - will operate much like Roth IRAs.


Married couples with modified adjusted gross incomes up to $191,000 and individuals earning up to $129,000 will be able to save up to $15,000 total in after-tax dollars for a maximum of 30 years. Then the employee would transfer their $15,000 account balance to a Roth IRA.

MyRA contributions can be withdrawn tax-free at any time without penalty, though pulling out any earnings will be subject to the same restrictions as the Roth IRA.

Initial investments can be as low as $25, and contributions as little as $5 can be made through payroll deductions; mutual funds usuallyhave much higher investment minimums.

There will be only one investment option: The Treasury will create a security fund modeled after the federal employees' Thrift Savings Plan Government Securities Investment Fund, which pays a variable rate.


For the year that ended in December 2012, it had an average annual return of 1.74 percent. It posted an average annual return of 2.69 percent for the five years that ended in December 2012. There will be no fees. No fees are nice, but that annual return isn't inspiring.

Sounds great, but I doubt that there will be any wide interest in that. First off, an Employer would have to make that MyRA available for their employees since it requires payroll deductions.


Second, how could rank and file employees afford to make after tax contributions to their plan if they are lower paid? The problem with 401(k) plans has been such low participation amongst the lower paid since they don't have enough disposable income to make tax deferred contributions under a 401(k) plan and would have less to save if the contributions were after tax.


Thirdly, there are enough small business retirement plans available for those employers without the resources to set up a 401(k) plan such as a SIMPLE-IRA and self employed pension plan.  While MyRA requires no employer contributions (the other small business plans require contributions), I believe the lack of investment options, competing plans, and an employer's likely unwillingness to offer them will deter participation in a plan that is probably a good idea.


MyRA is a nice idea, just don't think it will catch on.

An event worth attending.

In the retirement plan business, there are way too many events and they cost a ton. Well, what if there was an event that cost a little bit of money, but you learned a whole lot.


Two of my best friends in the business, James Holland and Chuck Hammond have developed Evolution (k), a two-day event in Charlotte for financial advisors who want to be major players in the 401(k) plan space. The event will be March 3rd and 4th. Rumor has it that I will be there too and it's not just an excuse to visit the NASCAR Hall of Fame (obligatory pro-Jeff Gordon and Jimmie Johnson message here).

  Instead of shelling out thousands for one or two things you might learn about the business, Evolution(k) allows you to spend less and learn more from the experts.


Click here for more information.

Find us on Facebook 
Follow us on Twitter
View our profile on LinkedIn

The Rosenbaum Law Firm Advisors Advantage, February 2014
Vol. 5 No. 2
The Rosenbaum Law Firm P.C.
734 Franklin Avenue, Suite 302
Garden City, New York 11530
Fax 516-368-3780

 Attorney Advertising.  Prior results do not guarantee similar results. Copyright 2013, The Rosenbaum Law Firm P.C. All rights reserved.