Precept 10 Considerations in Taking Over Plans and Losing Plans
The first big problem in being on the losing or (alleged) winning side of a takeover plan is money. Sometimes the client owes the prior actuary money and doesn’t intend to pay and yet still needs information or documents from the prior actuary.
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From The ARA Code of Conduct:
“When a Principal has given consent for a new or additional professional to consult with a Member with respect to a matter for which the Member is providing or has provided Professional Services, the Member shall cooperate in assembling and transmitting pertinent data and documents, subject to receiving reasonable compensation for the work required to do so. In accordance with Circular 230, the Member shall promptly, at the request of the Principal, return any and all records of the Principal that are necessary for the Principal to comply with federal tax Law, even if the Member is not subject to Circular 230. The existence of a fee dispute generally does not relieve the Member of this responsibility except to the extent permitted by applicable state Law. The Member need not provide any items of a proprietary nature or work product for which the Member has not been compensated.”
The last phrase is not quite the same as Precept 10 from the Actuarial Code of Conduct which says, “The Actuary need not provide any items of a proprietary nature, such as communications or computer programs.” There’s no exception for refusal to provide “work product for which the Member has not been compensated.” Also, the regulations of the Joint Board for the Enrollment of Actuaries say, “The enrolled actuary, however, must provide the client with reasonable access to review and copy any additional records of the client retained by the enrolled actuary under State law that are necessary for the client to comply with his or her obligations under ERISA and the Internal Revenue Code” regardless of compensation. Returning the “client’s records” without fee would include census data and trust data in the form received.
Exacerbating the issue is that the client has almost always been provided with virtually all, if not all, of what the client or new actuary is asking for. My opinion is that, as a professional courtesy, the takeover actuary should ask the client for copies of files to minimize what the prior actuary needs to provide. That tends to minimize the aggravation for the prior actuary and encourage cooperation. However, that’s not always possible due to poor record retention by the client.
If more than a small amount of work product must be copied, unless it’s “necessary” records as defined under the JBEA regulations, the client should be prepared to pay a reasonable fee to the prior actuary to make copies. “Reasonable” is not what Staples charges for copies because it takes a knowledgeable and experienced person to be able to include what must be copied and exclude what should not. I would never let my whole file be copied since it would be easy to mistakenly include proprietary material or internal notes. It’s also very easy for an assistant to fail to copy necessary items, which could lead to a second request. I have yet to see what I would call an unreasonable charge to copy files.
That said, the prior actuary should consider that it might be better to see the door hit the rear end of a bad client on the way out or to not charge at all. "You want this? Here it is. Have a nice life… or not."
The second problem in receiving or sending copies is timing. The client wants it done yesterday. Well, Coleridge may be dead but others still smoke pipes. Asking the prior actuary a week before September 15th for voluminous copies may not be reasonable; copying a couple of amendments is probably quite reasonable. I think what’s reasonable in this situation is negotiable because as a Tom Hanks character once said, “Time is money.” A key to a smooth takeover is for the takeover actuary to try to make it as easy as possible for the prior actuary to comply. If a potential client wants you to take over a plan two weeks before the extended tax filing deadline, then the client had better have all of what is necessary. Otherwise a reasonable deal needs to be negotiated with respect to who does what, when, and for what fee.
Keep in mind that what you or I think is reasonable may not be what the ABCD thinks is reasonable. The prior actuary should try to be cooperative because an irate client might very well file a complaint with the ABCD, as might a frustrated takeover actuary, whereas normally most clients are very reluctant to let outsiders, such as the ABCD, see their files.
While we are talking about the ABCD, I want to mention two services the ABCD provides that could be useful in situations like this. First, either actuary could file a request for guidance (RFG). An ABCD member would then advise the actuary on how to comply with the Code of Conduct and, yes it’s possible, provide some real-world advice such as I remember from Carol Sears: “If you wrestle with a skunk, the skunk wins.”
The second service the ABCD can provide is arbitration. Oddly, very rarely is arbitration sought even though it provides a perfect opportunity to bring in cooler heads and save time, money, and aggravation. Any of the parties can request arbitration.
A third problem is the form of the data, documents, etc. being provided. Both the prior and takeover actuary are usually happy exchanging either pdf and other electronic copies of documents and forms or hard copies. Hard copies of reports and data are fine for small plans but not for larger plans. For larger plans the data needs to be in a negotiable electronic format to be useful. Telling the ABCD that you are following the letter of the Code of Conduct by providing hard copy data for 1,000 participants is not the way to either inner peace or the avoidance of ABCD problems.
In conclusion, help the client leave as fast and as easily as possible. Since what goes around comes around, the next time you might be taking over a client from the other actuary. And maybe someday you might get the client back and you’ll both be thrilled for the reunion. OK, that’s probably too much to hope for, but inner peace and the avoidance of ABCD problems is not.