Cost Shifting During Hardship: Fee Strategy & Fiduciary Risk

[0:00] JD: Brandon, you got a little video to kick us off. We are super excited for our guest today. You're talking about a former president of aspa, the author of the eob, the ERISA outline book, probably one of the top minds on ERISA technicalities. Freaking Sal Trapote. What's going on, Sal? [0:35] Sal Trapote: Oh, things are good. How are you guys? [0:38] Mark: We're good. [0:38] Sal Trapote: We're good. I am good. [0:40] JD: What brings you back on retireholics for the second time in your career? [0:45] Sal Trapote: Just because I had so much fun in Hawaii and I thought it would be great. [0:49] JD: We did have a good time. We did have a good time. Well, you're used to it. [0:53] Sal Trapote: You're yanked a lot in the email. [0:56] JD: Yeah, I did. I was begging. I was begging. [1:01] Chad: That doesn't surprise us. [1:03] JD: Sal, you have played these games before with us. So we're gonna kick it, go back to the old school game that we call prohibitive word. And if you say that word, you must drink from your nasty drink. Everybody show the audience what you got going on for your nasty drink. And if you're tuning in, if you could help us out and police it, feel free to do that in the chat box. We are drinking beer and then drinking a penalty drink. Sal's just sipping on his penalty drink the entire show is my understanding. So there he is, like a true gentleman. [1:40] Chad: Neat, too good. [1:43] JD: Let's dive right into it. We've talked about this a little bit, but we haven't really dove deep into it. I'm starting to get more and more requests from advisors and their plan sponsors about, about shifting their fees from like, hard dollar fees that they pay us as tpa and they want to shift it to an asset based fee because they're struggling, right? Their businesses are hurting. They're trying to look at all their overhead and they say, they come to us and say, hey, we're paying you three grand a year. Can we stop doing that and shift it to the assets the same way we pay our record keeper, the same way we pay our advisor? How do you feel about that, given that the optics are. The one reason you're doing it is because your business is struggling. What does Sal Tripote think about that? [2:37] Sal Trapote: I'm not crazy about that because I think what you guys do is you provide services that really, the value of your services don't really correspond to the value of the plan assets. So it doesn't to me, I think as a plan, I think as a. [2:57] Justin: I think you broke the last show record. [2:59] JD: Yeah, I think you're breaking all records. [3:02] Sal Trapote: Hold on. Hold on. [3:05] JD: Well, let's. Let's also assume. Let's assume that you could cap it at 3k. So let's assume that it doesn't grow with assets, but you're just going to take it now from the participants as opposed to writing a check for it. [3:16] Sal Trapote: If you're going to be subject to a cap, it'll be lower based on the value of fees. Does that make sense to you? [3:23] JD: Here's my. First of all, if you were a new client and you came to me and you want to have your fees asset based, I have no problem with that. And we do that from time to time. So if you make that cognizant decision, you understand it, you're aware of it, we will do that. Whether that's just pure basis points or whether that's setting a flat dollar amount to be taken from the assets, we will totally do that if you want to. My issue with this now is the motivation for you doing it is that you're struggling financially. And I feel like that that puts a different kind of filter on it. It's like you're saying to your employees, hey, we're in tough times, we're struggling, so we're going to push this fee [4:06] Mark: to you and so are the employees [4:09] Chad: and extrapolate it out. That's what I was just going to say, Mark. Extrapolated out where. Now you're saying if the business is struggling, the employees are likely struggling. And if the employees are likely struggling, we know the market is down. Now you're saying not only is the market down, but we're going to throw on some extra costs that you are not used to paying. Like the whole flow of it is tough in this current time. [4:32] Justin: Think about what that does. [4:34] Sal Trapote: So is this really more about pushing the. Because the flat fee can be pushed to the plan. [4:39] Chad: That's what we're saying is that they're. Oh, yeah, another one. They're pushing all costs to a basis point just so that the business doesn't have to write a check for those fees. [4:49] Mark: Right. [4:50] Sal Trapote: So that's fine. But they could do that with a fixed fee that gets allocated to a carrier. [4:57] JD: Sure. [4:57] Sal Trapote: Yeah. [4:58] JD: I don't care about that. I'm just asking more about making a. [5:01] Sal Trapote: You're asking more about having the plan pay where the employer used to be paying. [5:05] JD: Yeah. [5:08] Mark: Would you have a different. [5:09] Sal Trapote: Can I ask for a new word? [5:11] JD: Sorry, Justin, you were saying. [5:12] Justin: Yeah. Would you have a different feel towards it? Meaning, you know, basing it off of plant size or actually parti. Yeah, plant size. And participant size. [5:19] Sal Trapote: That's true for you, buddy. No, I think this is. Now that you guys have talked more about it, I see that the real issue is the employer doesn't matter how it's calculated. The issue is whether the employer wants to keep paying out of pocket versus the plan. And I think that's a reasonable decision for an employer to make. Anytime there's nothing. There's no requirement for an employer to pay the expenses outside of the vehicle. So they can certainly pass that on. And remember that these accounts are really. They're not directly affecting employees till it's time to actually get paid. And if the employer frankly needs the financial assistance so the plan can stay viable to pass on through the vehicle's account balances, that's reasonable. I think the. The employer has the right to do that. In some cases, should do that. So if it's necessary to be able [6:22] Mark: to continue, the right to do it. Yes. Can't argue that. But we talked about earlier the Savers act being a bad look. Right. We're essentially saying it's benefiting those who can probably take the hit more so than the others can right now. Especially right now. So you're telling me that, oh, hey, employees, we're gonna cut your pay by 40%. And by the way, you know, you're having other issues and your expenses don't change, we're gonna charge you more just to save money [6:58] Sal Trapote: retirement, which is. I certainly would feel differently about it. [7:04] Chad: Right. [7:04] Mark: You know what I was gonna say? [7:06] Sal Trapote: But if employee. [7:07] JD: If he. [7:08] Sal Trapote: If the employer is trying to take. Make some adjustments so it can keep the plan going, keep paying their employees, but part of that means shifting the burden of expenses more to the balances. I think that's a reasonable thing to do. [7:23] Mark: Okay, fine. [7:25] JD: That's the debate. [7:26] Mark: I think I'm okay with that. As long as. If the business owners are the one making that decision, fine. Take it out of your account. It's not coming. You're not cutting a check for it. Take it out of your balance. [7:37] Chad: Oh, geez, look at you go. [7:39] Sal Trapote: Mo Mark significantly higher than the people [7:43] Mark: that are putting Mark will come out [7:44] Sal Trapote: of that person's account, though their account is probably the biggest one. [7:49] Chad: The majority of the assets. [7:50] JD: Yeah, it depends. [7:51] Mark: As long as that's the case, I get it. Maybe I'm okay with it. [7:55] Sal Trapote: No, it's just. And also, keep in mind, yes, you are taking it out of accounts, but that is different than asking employees to actually. They're not writing a check to pay for these expenses. It is coming out of their account and maybe over time and, you know, they'll be back to our situation where they can. This is so weird because this is so different than my politics. I can't believe it. [8:19] Mark: Chad, one second. The only thing that I worry about in the grand scheme of the bigger picture is that they do that and make that change now, whether you agree with it or not, whether it's right or wrong, and then they don't change it in the future. If there was to make sure that, okay, when the dust settles and hopefully you go back to business as usual, that your, your cost to your vehicle goes back to what it was as well. But my mind, right. It's just like anything else we do. Once you set it, kind of forget about it unless you're okay, I'll throw it back to our advisor community. Hopefully they're a part of this process and they can come back and sit with them during the review process and go, hey, remember how we adjusted that because you were having some financial troubles? That is over. We're in a good place now. Let's get back to you cutting this check because of the tax efficiency and also your participants don't need the burden of this cost. [9:19] Sal Trapote: Well, I think you actually have hit the nail on the head. I think the key is that the advisors around these employers, whether it's the advisor, whether it's you guys, or a combination helping the employer to keep track of these kinds of things and say, you know, circle them back to the decision that was made when they were struggling and say, well, you know, you can get a separate deduction from this apart from the deduction getting from the plan. You were able to afford this before. Now you're back to where you need to be. I think that's a good thing to do. But I think the onus is going to be on you guys to be doing that. The employer is probably not going to do that on their own once they shift that to the plan and they [9:57] JD: see that they're not paid right.