SPD Question

[Guest willow]

I have just gotten a new client that has two 403(b) plans and two 401(a) plans. They are having a law firm draft the documents and when I asked if the law firm was also doing the SPD's they did not have an answer. They just checked with the law firm and the charge for the four SPD's will be between $11,000 - $12,000 (ouch!).

Is anyone aware of any service that would take these documents and make an SPD?

Thanks!

Willow

[No Name]

Get a copy of the docs, do it yourself and charge less.

[mbozek]

I dont understand what you are looking for. An SPD is a legal document which states the rights of plan participants to benefits under ERISA. Why would a non legal document service provide an employer with a document that it will certify meets the legal requirements for an SPD for which it would be laible if the document violates ERISA. There are a lot of providers who issue SPDs but advise employers to have the doucment reviewed by counsel for compliance with ERISA because they do not practice law. The client could combine the 403(b) plans to reduce the cost of the documents instead of having separate plans.

Alternatively you could take no names advice and certify that the SPDs meet the legal requirements for an SPD.

[david rigby]

Or the plan sponsor says "ouch" to the law firm, and see if a lower fee is available.

Or look for another law firm.

Or pay it.

[WDIK]

It's been a long time since I studied economics, particularly the law of supply and demand, but see if my logic makes sense.

1) If demand is high, prices go up.

2) If supply exceeds demand, prices drop.

3) We need more lawyers to help lower the costs of creating SPDs.

[Lori Friedman]

And to think, I've been buying all of my insurance products from Ned Ryerson. I should be shopping around for competitive prices. But, I guess there really isn't any "competition" out there after all, because Ned is unique...an industry unto himself.

[mbozek]

If you want a lower price for the SPDs "Make the lawyer an offer he can't refuse."

[GBurns]

Good suggestion. "Do it for $X or else....".

I don't know about the 401(a) but How non-standard can the SPD for a 403(b) be, even if it is an ERISA plan? $11,000 makes me think that this law firm either sees the client as a "sucker" with deep pockets or have no idea what is appropriate which could occur if this is not something that they have done before.

I wonder what others who used other law firms have paid?

[Guest willow]

Thanks for the information.

I have had limited success in finding providers. In wanting to help others if the situation ever arises, McKay Hochman may be able to provide a solution.

Regards,

Willow

[RTK]

I know I am late with my comments, but I can't pass this one up. That fee may not be unreasonable, depending upon the circumstances, the terms of the plans and the skill of the lawyer. Before looking around for a cheaper non-lawyer fee, you should check to see if your client will want the spds reviewed by counsel (since they can create rights, duties and obligations). If yes, you may want to ask counsel if counsel will even review the spd and an estimated fee for doing so. I often warn clients that it may cost more to review a spd (or document) than to prepare one. And of course, you often get what you pay for.

[Guest willow]

RTK...

Point noted.

Thanks,

Willow

[Guest TGeer]

It's certainly acceptable to ask the lawyers how many 403(b) plans they have. Most benefits lawyers spend most of their time on qualified plans, so the client may be paying for this firm to learn all about 403(b). The client can also ask how much is being charged for the 401(k) SPDs, and then insist on the same price for the 403(b).

More likely, your client is running into the economic dilema of lawyers in the retirement plan business. A law firm that charges by the hour is almost always going to be much, much more expensive than a document provider associated with the TPA or investment provider. Often, this is because the non-lawyer actually doing the drafting is cheaper to hire than a lawyer (and has less capacity to spot problems). However, it is also true that a lawyer in an economic structure that sells hours has a much reduced incentive to become more efficient. My experience when lawyering was that at some price level, the clients thought you might be doing shoddy work, and that lawyers like business litigators have no comprehension of efficiency and economic value as the rest of the world understands it.

The stuff about preparing for review by counsel is a dodge. In my entire career (since 1978), no client has ever brought me somebody else's plan to review. It allows the lower cost provider to provide the document at a price that makes economic sense for the client.

[Kirk Maldonado]

While I agree with TGeer that most attorneys spend their time on qualified plans and not 403(b) arrangments, I think that the reverse is also true. Namely, the people that work on 403(b) arrangements typically don't also work on qualified plans. Thus, in my experience, they aren't as knowledgeable about the ERISA requirements as they should be.

Thus, you have one group that is knowledgeable about qualified plans and another group that is knowledgeable about 403(b) arrangements but relatively few people that understand both well. That is the real reason for the high cost.

But trying to save money on legal fees generally is counter-productive in the long run. I recently worked on a transaction where the client tried to save $500 or $1,000 by not getting an attorney involved in something that they did. My fees alone were more than $10,000 trying to figure out a way to salvage the situation. Both myself and opposing counsel in the deal finally concluded that the client had screwed it up so badly that it wasn't capable of being fixed, and, in the end, we had a lot more questions than answers.

If the ERISA attorney is good, he or she won't need to gouge the client on fees, because he or she will have plenty of work. Accordingly, the fees should be money well spent.

[JanetM]

My question would be what happened to previous SPDs? Are all four of these plans new? If these are not new plans and they are pinching pennies, have someone revise old SPD and get it reviewed.