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The Essential Plan Providers for a 401(k) Plan.

What to look for and what to avoid.

 

When people are sick, especially debilitating illnesses or diseases, it's natural for them to travel far and wide to get the best medical coverage possible. I live in Long Island, but my children were born in Manhattan because we felt the care there was better. People who are ill will try to find the best medical coverage possible; they won't hire a doctor because they're the lowest price. So it's kind of surprising that when it comes to the financial health for retirement plan sponsors, they skimp when it comes to hire their plan providers. To save a few hundred dollars, they may hire a third party administrator (TPA) who is incompetent and was only hired because they also happen to handle payroll. Plan sponsors need to make solid choices of retirement plan providers because it's their neck on the line if they don't. So this article is about the essential plan providers to hire and what to avoid when hiring them.

 

For the article, click here.

You're Thinking of Using Your Payroll Provider as Your 401(k) TPA and This is Why You Shouldn't.
Stomp out that silly notion.

 

The reason you are reading this article is because you have considered using your payroll provider to serve as your 401(k) plan's third party administrator (TPA). This article is going to show you why this is a bad idea.

 

To read the article, please click here.

No matter what people tell you, this retirement "unicorn" doesn't exist.
 
Ringling Bros. and Barnum & Bailey Circus has been around for more than a century and it proclaims itself to be the "Greatest Show on Earth". In 1985, the Greatest Show on Earth presented a living unicorn. Of course, the problem was that a unicorn is a mythical creature. How Ringling Bros. thought that a goat with a horn sticking through its head could be pawned off as something that doesn't exist is beyond me. In the 401(k) retirement plan industry, one of our "unicorns" is the idea that 401(k) plan sponsors could have their plans administered for free. Of course the free 401(k) administration unicorn doesn't have a horn, it's just loaded with fees that plan sponsors choose to neglect. So this article is about why there is no such thing as free 401(k) administration.

To read the article, please click here.

Form 5500 as the Eye in the Sky.
It's public information as to what you do with your plan. 

 

"In Vegas, everybody's gotta watch everybody else. Since the players are looking to beat the casino, the dealers are watching the players. The box men are watching the dealers. The floor men are watching the box men. The pit bosses are watching the floor men. The shift bosses are watching the pit bosses. The casino manager is watching the shift bosses. I'm watching the casino manager. And the eye-in-the-sky is watching us all." -Casino (1995)

 

Retirement plans don't have that much oversight, but the fact is that what plan sponsors do with their plan is open to the public since the Form 5500 that every ERISA based retirement plan has to file is publicly available. Folks like Brighsctope.com will rate a plan sponsor's plan based on that information.

 

There is a lot reported on a Form 5500 and potential plan providers can use that information to gauge whether the plan should be a target for recruitment. That information can also fall into other hands that a plan sponsor wouldn't want for them to see, such as the government and ERISA litigators.

 

Much like a resume, a 5500 is littered with information that is certainly ripe for discussion, so that's why plan sponsors should be vigilant about their retirement plan to make sure that damaging information can't be divulged by making sure the bad stuff doesn't take place.

A law professor from Yale sent 6,000 letters in a disjointed way to plan sponsors claiming that their fees were high and that information would be posted on Twitter. Plan sponsors and their advisors were outraged, but that's what happens when a Form 5500 is publicly available.

So plan sponsors may not have an eye in the sky watching them, but a Form 5500 can be proof that something might be wrong with a plan sponsor's plan.

Make a sure a plan provider change is for the right reason and not to make someone $$$$$.
Make a provider change if it's good for you, not if it's good for someone else.

 

Everyone has an opinion, but I think the independent opinion that is guided by beliefs and not by pay is far more important than the opinion that is greased by greed.

 

I had lunch with my local neighborhood third party administrator (TPA) and we were talking about the business of retirement plans.

 

He told me that a recent client bolted to a payroll provider TPA (not the big 2, but another smaller one. Yes there are others) to save $600 in administration fees.

 

The client was told to move to the payroll provider TPA by their accountant because of the $600 savings. What I forgot to mention is that the accountant is the new broker of record for the plan. The accountant is wearing two hats. I own lost of hats (I love fitted Major League Baseball hats), but I only have one hat to pay.

 

What the accountant and the new payroll provider TPA failed to mention is that they were each netting over $10,000 for this change. Of course, the client wasn't thrilled when the old TPA told them the "good news".

 

The lesson here is that if you're a plan sponsor and you get a recommendation by one of your provider to change the advisor, make sure it's for the right reason and not for the recommending provider to get some pecuniary gain. There are many good reasons why plan sponsors should make a plan provider change, a windfall for your financial advisor and new TPA isn't one of them.

Through September 30th, the Retirement Plan Tune-Up is only $500.  
 

Ary With September 30th around the corner, this is usually the time that plan sponsors consider a change to their retirement plan for the New Year which may include a change of providers.

 

What better way to start the process, but by having your retirement plan reviewed? The Retirement Plan Tune-Up, a legal review I developed, that looks at the plan's document, administration, costs, and investment policy statement that get a plan sponsor peace of mind and tips on how to minimize liability. 

 

It is incumbent on a retirement plan sponsor to annually review their plan and the Retirement Plan Tune-Up is a cost effective way for your plan to be reviewed.

So since December 31st is coming up and plan sponsors need an incentive to get their retirement plan reviewed, Retirement Plan Tune-Ups for the month of September will only be $500, a steep discount from the regular price of $750.

 

For a sample of what the Retirement Plan Tune-Up looks like, please contact me or call me at 516-594-1557.

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The Rosenbaum Law Firm Review, September 2013, Vol. 4, No. 9
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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Copyright 2012, The Rosenbaum Law Firm P.C. All rights reserved.