Retirement plan sponsors are being solicited at a significant rate with offers to move their plan assets to a new investment company and/or new broker as this economy evolves. At Administrative Retirement Services, Inc. we have been contacted by our clients regarding these solicitors and questioned about the tactics being used to get into their offices for a meeting. Most tactics we have been asked about involve a solicitor trying to scare the plan sponsor into a meeting by discussing some aspect of plan compliance and the potential liability of the company. Some of the things clients have been told by solicitors are:
- Their plan is required to have an independent review of their plan documents and amendments, compliance testing, investments performance and plan fees.
- Their plan is not 404(c) compliant and the fiduciary is liable for any plan losses (see 404(c) article).
There are also companies which contact retirement plan sponsors and find out everything they can about the plan and then offer a Free Plan Review. These companies then sells the lead (meeting) to a broker. The leads are very expensive (based on plan assets) and the broker’s objective for the meeting is to takeover as the plan broker and potentially move the plan investments. We have heard that these companies resell the lead over the next few years if the plan does not move.
Clients are also being solicited by payroll companies. The solicitation is that the payroll company will make the plan and process easier. The solicitation is coming from a salesman. Salesman promise the world and once the sale is completed are gone from the picture. Some things we have encountered when taking over plans that were serviced by a payroll company are:
- The testing was not prepared accurately due to lack of pension training. One small Plan we represented during an IRS audit which was owned 50/50 by the husband and wife included the husband as a highly compensated employee (HCE) and did not list the wife as an HCE. The compliance testing for the year was incorrect and had to be rerun a second time at an additional cost to the client. Plan testing mistakes can be very costly if not caught timely.
- Required amendments were not prepared. When a new client could not provide a copy of a required amendment, the client and ARS called the payroll company to obtain a copy of the amendment. Although we were told the amendment was prepared, a copy could not be provided. When we asked to speak to a supervisor, we were told one was not available. Ultimately we were unable to obtain the required amendment. The correction for the missing amendment resulted in additional costs for the client. Failure to timely amend your plan can also result in IRS penalties and plan disqualification.
- Assets were released very slowly when the client elected to transfer assets to another provider. Some payroll companies require 90 days notice before transferring plan assets. Most vendors only require 30 days notice.
Most investment companies want to be in the business of gathering and recordkeeping retirement plan assets. In an effort to control the entire relationship they offer TPA services as a bundled provider. Providing TPA services is not their core business; they do not offer TPA services separate from investment services. These companies are know as bundled providers. A few examples of poor TPA service by a bundled provider that ARS has personally encountered when working with a new client are:
- Annual notices were not thoroughly prepared. ARS recently took over a plan and asked a bundled provider to provide a copy of the prior year’s safe harbor notice. The safe harbor notice should have been provided less than eight months earlier. The bundled provider offered a blank safe harbor notice template which they stated they provided the client. Most clients would not know how to complete a safe harbor notice template. This was very poor service to offer a client. Bundled providers may have become too large to provide detailed work.
- Tax filings were not thoroughly prepared and were not followed up on. A client was provided an incomplete tax form, Form 5500, year after year with a letter from the bundled provider stating that data was requested and not provided. This went on for over eleven years. The client never filed the Form 5500s. The current management had a huge problem on their hands which should have been resolved in the second or third year by the bundled provider. Ignoring something as important as a tax filing reflects the lax TPA service provided by some bundled providers. Correcting this tax filing deficiency was very costly for the client.
Bundled providers may be outsourcing their work and client data to offshore entities to perform the retirement plan administration. This should be a concern for any business owner. Are offshore entities held to the same confidentiality standards, or is client data at greater risk of theft? Are offshore entities educated in ERISA and trained specifically in U.S. pension administration? ARS receives regular solicitation from offshore entities to out source work to them, and we do not and will not pursue this avenue. ARS performs all services in-house in a controlled, confidential environment where we commit to focused and detailed work. ARS has been told from other small TPAs that they do out source services to offshore entities.
Bundled providers are even more likely to out source services as it is a cost-effective practice, even if it does not result in proven quality service. If you are considering a bundled provider, or another TPA, you should ask about outsourcing to find out about confidentiality standards and staff training.
Selecting the right service providers, investment options and compliance assistance, is very important to the success of the plan. It ensures testing, disclosure and filing are prepared accurately. It ensures investments meet the company’s objectives and offer necessary diversity. It ensures adhesion does not unintentionally impact the investment broker. By having detailed, caring, knowledgeable service providers such as ARS, you can be confident your plan is meeting all IRS and DOL requirements. IRS plan audits are currently the highest we have ever seen. If your plan were audited, the best way to be confident the audit will go smoothly is to have competent service providers, such as ARS, assisting you with the plan.
Be wary of solicitors who use scare tactics to get in the door; and think twice if you are offered a free service. The best way to ensure your plan is meeting all IRS and DOL requirements is to have competent service providers. The threats and misleading free offers won’t change that basic fact.
If you have any questions about a recent solicitation of your retirement plan, please contact Administrative Retirement Services, Inc.