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5 Criteria 401k Plan Sponsors Must Consider Before Hiring an ERISA Attorney

May 03
00:06 2011

With many changes looming from Washington regulators – from mandatory fee disclosure to redefining fiduciary liability – 401k plan sponsors will likely need to turn to independent experts for advice. Among those most likely to be called 942424_65281584_five_dice_stock_xcnhg_royalty_free_300are ERISA attorneys. Too often a plan fiduciary only considers those service providers he more often contacts (e.g., third party administrators, recordkeepers, investment advisers, brokers, etc…). The ERISA attorney, however, often provides plan information and regulatory interpretation. If the consequences of choosing the wrong ERISA attorney can prove catastrophic, what criteria should the 401k plan sponsor and fiduciary use to select an ERISA attorney?

Fiduciary News asked several experienced ERISA attorneys from across the country how they might approach this issue. As you might expect, picking the wrong attorney can lead to dire repercussions. “Not only do you risk losing the tax-qualified status attributable to 401(k) plans, which can be devastating both to the participants and the plan sponsor,” says Edward A. Marshall, Attorney at Law, Arnall Golden Gregory LLP, “but, even short of a total loss of such status, noncompliance with ERISA can result in significant penalties.” Individual plan sponsors and fiduciaries have still greater worries, advises Marshall. He says, “lack of proper guidance from counsel can greatly increase exposure to personal liability for breach of fiduciary duty and for engaging in prohibited transactions (which are defined broadly by ERISA).”

The first step to picking an ERISA attorney involves drawing up a list of possible candidates. Rather than merely going to Google or the Yellow Pages, industry experts suggest asking people you know. Business consultant William P. O’Malley, Managing Director at RSM McGladrey, Inc. says, “The best way is for the employer to discuss the matter with the law firm that it regularly uses as general corporate counsel. That firm may have those capabilities in house or may have one or more standing referral relationships.” Ary Rosenbaum of the Rosenbaum Law Firm, P.C. thinks “the best way is by word of mouth. Ask an adviser or a TPA for the names of independent attorneys they refer work to.” Marshall agrees. He says, “The best place to start is by relying on your existing firm relationships and referrals from your peers in the pension plan community to identify skilled counsel with experience in ERISA and ERISA litigation.”

As a 401k plan sponsor, you already have existing relationships from which to obtain referrals. Many of the experts we spoke to felt generating a list of 4 to 6 names is sufficient. With that list in hand, Attorney Jeff Mamorsky of international law firm Greenberg Traurig offered the following five criteria to consider as you compare different ERISA attorneys. Mamorsky says the ideal candidate should be:

  1. Experienced in plan design, drafting, regulatory approval and technical requirements (IRS, DOL and PBGC), compliance with ERISA fiduciary duties, establishment of best-practice plan governance procedures and negotiations with service providers and vendors.
  2. Experienced in operational compliance with plan documents and all applicable law to comply with tax (IRS) and ERISA (DOL) requirements.
  3. Experienced in representing plan sponsors in ERISA participant and governmental litigation and adversarial proceedings with IRS, DOL and PBGC.
  4. Experienced in assisting plan sponsors establish best-practice operational internal control procedures to comply with new financial statement requirements (SAS 115) and IRS and DOL compliance requirements.
  5. Experienced in conducting “mock” IRS and DOL Audits to qualify for self-audit voluntary correction without the imposition of monetary sanctions and prepare plan sponsors in the event of governmental examination.

While these five criteria appear generic, it’s important to realize different plans and different ERISA scenarios will have different answers to each of these criteria. For example, Rosenbaum points out you might be dissatisfied if, as a single employer 401k, “you picked an attorney with a limited background in single employer 401k plan who may be more experienced with multiemployer pension plans, which is a completely different animal.” And don’t be fooled by the title “ERISA attorney,” for the term ERISA refers to a large range of concerns. O’Malley says, “An employer needs to determine that the potential attorney does indeed have ERISA expertise and that the lawyer has that expertise with respect to that part of ERISA that applies to the employer’s situation. For example, if the U.S. Department of Labor is investigating the employer’s 401k plan, then a lawyer who specializes in defending employers with respect to ERISA healthcare claims may not have sufficient experience to represent the employer with respect to the 401k plan.”

Finally, we get to the issue of fees. Surprisingly, the attorney experts Fiduciary News spoke with warned of the infamous “billable hour” albatross that drags on the industry. Rosenbaum advises “either hire an attorney who offers flat fee billing or a guesstimate of what costs will be. Many ERISA attorneys bill by the hour and some use that method with abuse where a client is spending needless amount of money for something rather simple.” In a similar vein, O’Malley warns that the strength of a large firm may also be its greatest weakness when he says, “Many of the largest law firms in the country have very strong ERISA departments. However, those great resources come at a price that may be more expensive than what a particular sized employer may need. For example, if the employer is a medical corporation there are many small and medium sized law firms that do a great deal of tax and ERISA work for professional firms and such firms often have the skill needed at an appropriate price.”

In the end, picking an appropriate ERISA attorney is definitely a caveat emptor situation. “You will want to identify counsel with specialized expertise in ERISA, which is a notoriously complex and dynamic statute,” says Marshall. Preferably, he says, “the firm you select should have regulatory, transactional, and litigation experience in ERISA matters, because prudent implementation of the statute’s requirements is shaped as much by regulatory policy as it is by understanding emerging trends in ERISA litigation. Finally, you should ensure the firm you select has experience with plans comparable to your own in terms of the number of participants and size of the plan’s assets.”

Perhaps the greatest thing to remember is you aren’t limited to one firm or one ERISA attorney. Attorney Tod Yeslow of Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C. reminds us, “Keep the names of candidates who have a specialized skill or talent that you may need for future reference, for you are never limited to using just one employee benefits/ERISA lawyer.”

[Editor’s Note: Do you have a favorite ERISA attorney that you’d like to have us recognize? If so, then we encourage to do so in our new survey: “Name Your Favorite ERISA Attorney.” Please do click through to our survey and tell us about your favorite attorneys (up to 3). We’ll compile the results over the next several weeks and seek out the more popular ERISA attorneys for comments and interviews. Feel free to nominate anyone – someone you’ve worked with, someone you’ve seen at a conference, someone whose articles you’ve read. You can even nominate yourself if you’re an ERISA attorney. Your responses are anonymous.]

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

3 Comments

  1. Nora Bethman, ERPA
    Nora Bethman, ERPA May 09, 16:20

    I agree that all of these points regarding selection of an ERISA attorney are valid, but what was not mentioned in the article was the alternative of hiring an Enrolled Retirement Plan Agent. Enrolled Retirement Plan Agents, or ERPAs, specialize in retirement plan issues and must pass rigorous testing and continuing education requirements set forth by the Internal Revenue Service. They may represent clients before the IRS for retirement plan matters, such as guiding the client through one of the many voluntary compliance resolution programs, and must abide by high ethical standards. For a smaller, cost conscious firm, an ERPA may be a more specialized, viable alternative for review of plan documents or internal best practice audits.

  2. Jeffrey Zimon
    Jeffrey Zimon May 11, 16:15

    I think it is great that folks serving 401(k) Clients are even thinking that ERISA attorneys are needed in the context of 401(k) Plans. With respect to other commentators, the fact is that much of the advice that is sold to 401(k) fiduciaries and sponsors is actually legal advice. So, candidly, those providing it are practicing law without a license. Anything that touches ERISA fiduciary rules, that goes beyond mere education and into direct advice is strictly within the purview of attorneys. The problem is paying for it. But, there are ways to deal with that too on creative fixed fee and alternate fee arrangements that permit great, timely and legal advice. On the tax side, and even on actuarial advice, there are others who are qualified. The four new DOL rules clearly point out that sponsors and fiduciaries need to know how to get the right value from the right provider.

    Great article.

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