The Rosenbaum Law Firm P.C. Blog

Every retirement plan provider seems to have amazing technology.

At least that’s what the sales presentation says.

There are dashboards, mobile apps, payroll integrations, artificial intelligence, automated enrollment, participant engagement tools, and portals that supposedly do everything except make your morning coffee.

Technology is important. I’m certainly not suggesting otherwise.

The problem is that providers sometimes confuse having great technology with providing great service.

Most plan sponsors don’t wake up in the morning excited about their recordkeeper’s new dashboard. They want payroll contributions deposited correctly. They want distributions processed. They want their Form 5500 completed. They want compliance testing done.

Most importantly, when something goes wrong, they want someone to answer the phone.

That’s where technology suddenly becomes very important.

A payroll integration that works perfectly 99% of the time is wonderful. What happens during that other 1%?

Does the provider have someone who can actually fix the problem, or does the plan sponsor get a support ticket and an automated email promising a response within three business days?

Technology should make service better. It shouldn’t replace service.

I’ve seen providers spend enormous amounts of money developing technology while cutting back on the experienced employees who actually understand retirement plans. That’s like buying a Ferrari and getting rid of the mechanic.

Eventually, something breaks.

The best technology in the retirement plan business is technology backed by knowledgeable people. Automation can eliminate repetitive work and reduce errors, but there will always be situations that require judgment, experience, and somebody willing to take responsibility.

Plan sponsors aren’t buying a portal.

They’re buying a service.

Technology can help you deliver that service better, faster, and more efficiently.

Just don’t make the mistake of believing that the technology itself is the service.

There is always someone willing to do it cheaper.

That’s why I’ve never understood retirement plan providers who build their entire business around being the lowest-priced option.

Price matters. I’m a flat-fee ERISA attorney, so I’m certainly not suggesting that providers should charge whatever they want. Clients deserve fair and transparent pricing.

But there is a difference between being competitively priced and being cheap.

Retirement plan administration requires knowledgeable employees, good technology, continuing education, insurance, cybersecurity, compliance resources, and enough staffing to actually service clients.

All of that costs money.

When a TPA continually underprices its services, something eventually has to give.

Maybe employees are handling too many plans. Maybe experienced administrators are replaced with cheaper, inexperienced staff. Maybe emails take longer to answer. Maybe compliance work gets rushed. Maybe the owners simply discover that they’re working twice as hard for half the profit.

None of those are great outcomes.

I’ve also seen providers afraid to raise fees on longtime clients. A plan may have been priced appropriately ten years ago, but the workload, regulatory environment, staffing costs, and complexity of the business have changed dramatically since then.

You can’t run a 2026 business on 2016 pricing forever.

Being the cheapest provider can certainly win business. The problem is keeping that business while providing the level of service you promised.

There will always be prospects whose primary concern is price. If someone wants to leave you because another provider is $500 cheaper, they probably weren’t very loyal to begin with.

Compete on service. Compete on expertise. Compete on responsiveness. Compete on making the plan sponsor’s life easier.

Fair pricing matters.

Being the cheapest isn’t a competitive advantage if you can’t afford to provide the service you’re selling.

One of the biggest mistakes retirement plan providers make is believing that every client is worth saving.

They’re not.

I understand why providers obsess over retention. Losing clients doesn’t look good. Nobody wants to explain why ten plans left last year. Salespeople especially hate losing accounts because they worked hard to bring them in.

But retention for the sake of retention is stupid.

Some clients don’t pay their bills. Some clients ignore every request for information until the last possible second and then blame you when something isn’t completed on time. Some clients abuse your employees. Others continually create compliance problems because they refuse to follow instructions.

Then there are clients who simply aren’t profitable.

If a client generates $5,000 in annual revenue but requires $15,000 worth of your staff’s time, that’s not a client. That’s a charity.

Providers need to periodically look at their client base and determine which relationships actually make sense. That doesn’t mean firing every difficult client. Retirement plans are complicated, and good clients can occasionally be demanding.

The issue is whether the relationship is consistently bad for your business.

I’ve always believed that one of the best business decisions I ever made was understanding that I don’t need every potential client. The wrong client can consume the time and energy that should be devoted to the right ones.

There is also a morale issue. Nothing frustrates good employees more than management allowing a terrible client to continually mistreat them because management is afraid of losing the revenue.

Sometimes losing a client isn’t a failure.

Sometimes it’s addition by subtraction.

When business owners establish a 401(k) or profit-sharing plan, one of the first questions they usually ask is: “How much can I put away?”

I understand.

The tax deduction and retirement contribution are often major reasons they established the plan in the first place.

But designing a retirement plan solely around maximizing the owner’s contribution is like buying a car based entirely on how fast it can go without asking what it costs or whether you can actually drive it.

There is more to plan design than the owner’s contribution.

You have employees.

Coverage testing matters. Nondiscrimination testing matters. Eligibility matters. Employer contribution costs matter. Safe harbor contributions may matter.

I’ve seen plan designs that look fantastic on paper because the owner can receive a substantial contribution. Then the employer discovers what they have to contribute for everyone else.

Suddenly, that fantastic plan design isn’t so fantastic.

Good plan design requires understanding the entire workforce. That includes compensation, ages, ownership, job classifications, turnover, related businesses, and the employer’s objectives.

It also requires looking beyond this year.

Maybe the demographics work perfectly today. What happens when you hire ten employees next year? What happens when another owner joins? What happens when you acquire another company?

A retirement plan should be designed around the business, not simply around one owner’s desired contribution.

That’s why plan design should involve conversations between the employer, TPA, financial advisor, accountant, and ERISA counsel when necessary.

There is nothing wrong with wanting to maximize the owner’s contribution. That’s often one of the biggest benefits of sponsoring a retirement plan.

Just remember that the owner isn’t the only participant in the plan.

Sometimes the most important number isn’t how much the owner can contribute.

It’s what getting that contribution is going to cost everyone else.

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A typical 401(k) plan may have a TPA, recordkeeper, financial advisor, payroll provider, accountant, investment manager, and ERISA attorney.

That’s a lot of cooks in the kitchen.

The problem isn’t having multiple providers. Each provider can play an important role.

The problem is when the plan sponsor assumes that somebody else is handling something when nobody actually is.

The TPA thinks payroll is handling it. Payroll thinks the recordkeeper is handling it. The recordkeeper thinks it’s the TPA’s responsibility. Meanwhile, the financial advisor assumes everyone else has it covered.

Then a deadline gets missed.

One of the biggest mistakes plan sponsors make is failing to understand exactly what each provider does and, more importantly, what they don’t do.

Service agreements matter. Engagement letters matter. Understanding the division of responsibilities matters.

Just because you hired several competent providers doesn’t mean every responsibility has been assigned to someone.

There can also be overlap. Two providers may believe they’re responsible for the same task, while another important task belongs to nobody.

Ultimately, the plan sponsor remains responsible for overseeing the plan. You can’t simply assemble a group of providers and assume they’ll coordinate everything among themselves.

That’s why I believe every plan sponsor should periodically sit down with their providers and review responsibilities.

Who handles eligibility? Who calculates contributions? Who prepares notices? Who monitors deposits? Who handles distributions and loans? Who is responsible for government filings?

Get the answers before there’s a problem.

Having several cooks in the kitchen can produce a great meal when everyone knows their job.

When they don’t, somebody eventually burns dinner.

With a 401(k) plan, that burned dinner can become a costly compliance problem.

One of the biggest problems with administering a 401(k) plan is that sometimes all the knowledge about the plan resides with one employee.

Then that employee quits.

Suddenly, nobody knows how contributions are transmitted, who sends the census to the TPA, where the plan documents are located, or even who the contacts are at the recordkeeper.

I’ve seen it happen too many times.

A plan sponsor relies on one HR or payroll employee for years. That employee knows everything about the plan, but very little of that knowledge is documented. When they leave, their institutional knowledge walks out the door with them.

That’s when mistakes happen.

Payroll contributions can be delayed. Eligibility dates can be missed. Notices aren’t distributed. Provider requests get ignored because they’re sitting in an email account nobody is monitoring.

A 401(k) plan shouldn’t depend on one employee’s memory.

Plan sponsors should have written administrative procedures covering the basic operation of the plan. Who handles payroll contributions? Who reviews eligibility? Who communicates with the TPA? Who approves distributions? Where are important plan records maintained?

There should also be a backup employee who understands these responsibilities.

Cross-training isn’t exciting, but neither is explaining to the Department of Labor why participant contributions weren’t deposited because Susan from payroll left three months ago.

Providers can help with transitions, but ultimately, the plan sponsor is responsible for making sure someone is minding the store.

Employees leave. They retire. They get promoted. Sometimes they get hit by the proverbial bus.

Your 401(k) plan should be able to survive any of those events.

If the entire administration of your retirement plan depends upon one person’s memory, you don’t have a system.

You have a future problem.

One of my biggest complaints about the retirement plan industry is when a service provider gets hired to perform one job and then discovers another way to make money off the relationship.

Participant data is becoming the latest example.

A recent Government Accountability Office report examined the privacy disclosures of 31 retirement plan service providers and raised concerns about how participant information may be used beyond simply administering the retirement plan.

That information can be extremely valuable. We’re talking about names, addresses, Social Security numbers, account balances, and other financial information.

A recordkeeper legitimately needs participant data to recordkeep a 401(k) plan.

The problem is when access to that information becomes an opportunity to market other financial products and services to participants.

The GAO found that 29 of the 31 privacy disclosures it reviewed did not limit the provider’s ability to share participant information for marketing purposes. More than half also did not limit the ability to sell participant data.

That’s a problem.

When an employer hires a recordkeeper, the participants didn’t necessarily volunteer to become prospects for that recordkeeper’s other businesses.

I’ve complained for years about recordkeepers using their access to participants to pursue IRA rollovers, wealth management relationships, and other products outside the retirement plan.

Participant data should be used to administer the retirement plan. If providers want to use that information for something else, plan sponsors should know exactly what’s happening.

Plan sponsors have fiduciary responsibilities. That means they should be asking providers how participant information is collected, protected, shared, and used.

The GAO has recommended that the Department of Labor provide additional guidance concerning participant data privacy.

I think that’s overdue.

A participant’s retirement account isn’t a customer acquisition list.

Plan sponsors should make sure their providers understand the difference.

Every time Bitcoin spikes, you can almost set your watch to what happens next in the 401(k) world.

People start talking about cryptocurrency in retirement plans. Again.

Participants see Bitcoin going through the roof and wonder why they can’t invest their 401(k) money in it. Providers see participant interest and start thinking about products they can sell. Plan sponsors start wondering whether adding cryptocurrency will make their plan look cutting-edge.

My advice hasn’t changed: I don’t think it’s a great idea.

I’m not anti-Bitcoin. What somebody wants to buy in their personal brokerage account is their business. A 401(k) plan is different because the plan sponsor has fiduciary responsibilities in selecting and monitoring the investment options offered to participants.

Bitcoin going up doesn’t eliminate those responsibilities.

The problem with chasing an investment after a huge run-up is that everyone suddenly develops amnesia about risk. Volatility becomes an afterthought because people are staring at the returns. Then Bitcoin drops 30%, 40%, or more, and everyone suddenly remembers that retirement accounts are supposed to be about retirement.

A plan sponsor also needs to ask what adding cryptocurrency actually accomplishes. Is it improving the retirement plan, or is it being added because participants are excited about Bitcoin today?

Those are two very different things.

I’ve always believed that a good 401(k) investment menu should be boring. Give participants diversified, prudent choices that allow them to build retirement savings over decades. A retirement plan doesn’t need to chase every investment trend that gets people talking.

Bitcoin may continue going higher. It may eventually become a much more accepted part of investing.

That’s not the point.

The question for a plan fiduciary isn’t whether Bitcoin is hot.

It’s whether putting it in the 401(k) plan is prudent.

Those aren’t the same question.

Mistakes happen in the retirement plan business. I’ve been doing this long enough to know that perfection isn’t a realistic standard.

What bothers me is when the plan sponsor repeatedly discovers the mistakes.

A census gets uploaded incorrectly. An eligibility date is wrong. A distribution is mishandled. The plan document doesn’t reflect what everyone thought the plan provided. Testing uses incorrect compensation. A participant who should have entered the plan wasn’t allowed to participate.

Then the sponsor finds it.

The plan sponsor isn’t your quality-control department.

Providers are paid because retirement plans are complicated and plan sponsors need expertise. That means there should be procedures designed to catch mistakes before the client catches them.

The occasional error isn’t necessarily a reason to fire a provider. A pattern of errors discovered by the client is something completely different. Eventually, the sponsor starts wondering what else is wrong that they haven’t found yet.

That’s when confidence disappears.

Quality control isn’t glamorous. Nobody wins a sales presentation by showing off their internal review procedures. Yet strong internal controls may be more valuable to the client than half the bells and whistles providers use to sell their services.

Providers should regularly review their work, especially in areas where errors create expensive corrections. Eligibility, compensation, contributions, testing, distributions, and plan provisions deserve more than a quick glance.

When an error is discovered, don’t just correct that particular mistake. Figure out why it happened and whether the same weakness could affect other clients.

A good provider fixes errors.

A great provider builds processes that make the same error less likely to happen again.

Your client hired you because they need help administering their retirement plan.

They shouldn’t also have to proofread your work.

One of the most frustrating experiences for a retirement plan sponsor is being bounced around between departments.

That’s a recordkeeping issue.

That’s a TPA issue.

You need payroll.

That’s handled by distributions.

Talk to your relationship manager.

Nobody cares about your org chart.

The plan sponsor hired a provider or group of providers to help administer a retirement plan. They shouldn’t need an advanced degree in your corporate structure to figure out who can fix a problem.

I understand specialization. The person handling compliance testing isn’t necessarily going to process a participant loan. The person working in sales isn’t going to calculate a corrective contribution. Large organizations need departments and defined responsibilities.

The problem starts when those internal divisions become the client’s responsibility.

Good service means owning the issue even when you aren’t the person who can ultimately resolve it. Instead of telling the client to call another department, connect them with that department. Instead of saying something isn’t your responsibility, help identify whose responsibility it is. If multiple providers are involved, don’t immediately point fingers at the recordkeeper, TPA, advisor, or payroll company.

Help solve the problem.

I’ve seen relatively minor administrative issues turn into major client relationship problems because everyone involved spent more time explaining why the problem belonged to somebody else than actually fixing it.

Plan sponsors have businesses to run. The 401(k) plan is important, but administering it isn’t their full-time job. They shouldn’t have to manage your organization on top of managing their own.

Your internal structure exists because it makes sense for your business.

That’s fine.

Just don’t make your client navigate it.

When a plan sponsor brings you a problem, the best response isn’t, “That’s not my department.”

It’s, “I’ll help you get this resolved.”