Saying Everyone Is Doing It Is No Excuse

A big part of my practice is assisting financial advisors, third party administration (TPA) firms, and plan sponsors nationally with what I call an open phone policy. Financial advisors, TPAs, and plan sponsors can call me up with any questions they have about qualified and non-qualified plans without having to worry that they are going to be charged for just getting an answer to a question. I am all about building relationships and helping people in the retirement plan community, save one retirement plan at a time. So if you need any quick answer or help, give me a call (cheap plug).

That being said, I got two questions a while back that were different but both ended with that saying I have heard so many times over the last 18 years as an ERISA attorney.

The first question came from a TPA in California. A defined benefit plan sponsor wanted to invest in a mortgage in a building that the plan sponsor would buy and the plan sponsor would live in. Of course, there is something called a prohibited transaction and an exemption from the Department of Labor won’t happen. Of course, the client’s financial advisor claimed that what the plans sponsor wanted to do was fine “because everyone does it.”’

In the second question, an attorney friend of mine asked me about a client of theirs who had a retirement plan, but wasn’t covering the leased employees in their office. Since the leased employees didn’t meet any of the exceptions set out by the Internal Revenue Code, they had to be covered. Of course the client thought that not covering the leased employees was fine “because everyone does it.”

As an ERISA attorney, I have to counsel my clients to operate their sponsorship of retirement plans within the limits of the Internal Revenue Code and ERISA. I don’t care what everyone else is doing if what they are doing would result in plan disqualification or sanction if caught by the Internal Revenue Service and Department of Labor. Plan sponsors and plan trustees are plan fiduciaries and have to act prudently within the confines of the law. Simply saying everyone is breaking these laws is no defense.

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