Tips and Traps for a Successful DC Plan Takeover

By John Ortman • October 19, 2015 • 0 Comments

For a TPA, the realred flag issues in a DC plan takeover aren't characteristics of the client, says Ilene H. Ferenczy -- they're things the TPA itself does during the takeover process and afterwards.

At an Oct. 19 workshop session at the 2015 ASPPA Annual Conference, Ferenczy, founder of the Ferenczy Benefits Law Center LLP, and co-presenter Ken Marblestone of the MandMarblestone Group, LLC offered a roadmap for managing a successful takeover -- and avoiding mistakes and reducing liability along the journey. Ferenczy and Marblestone offered three overarching goals in a takeover: do the job effectively, do the job profitably, and limit risk and the potential for litigation.

Do the Job Effectively

The plan and the TPA have different overall goals in a takeover, Ferenczy noted. For the plan, these are getting the plan running smoothly and making sure it is in compliance with the law. The TPA has three overall goals: get the information you need, don't repeat the mistakes the predecessor made, and don't disrupt the plan, the client or your own business.

Ferenczy suggested three steps to ensure that a takeover is done effectively:

  • Pre-assess the client. Do you want to work with this client? Can you -- and do you want to -- do this work? For example, ESOPs and cash balance plan require special expertise, Ferenczy noted. Can you meet the client's expectations? For example, can you realy deliver daily valuation? And can you do all this without disrupting your business, losing money or creating unacceptable liability?
  • Prepare for the transitional year. You and your client should both be prepared for the first year to be more difficult, more expensive and more thorough than any other year in your relationship, Ferenczy advised. "Your goals should be that by the end of that year, this case looks like all your other cases, the plan is running smoothly, the client's expectatons are met, the case is profitable, and the risk level is acceptable," she said.
  • Make the client yours. "You want the client to think of you as their pension expert," Ferenczy advised. She suggested four goals: build the relationship as you do with your regular clients; be a leader in that relationship by outlining the goals involved in meeting their needs; take the initiative in long-term planning, phasing in option over a timeline; and determine who should be involved in the process, i.e., financial advisor, attorney, etc.

Do the Job Profitably

"Don't make the client's problems your problems," advised Marblestone. "Who's going to pay to clean up the client's problems?" He posed two key questions:

  • Does a takeover have to be profitable? The answer is no, he suggested -- as long as you intended for the case to be a loss leader. 
  • Do you know when a takeover is profitable? The key here is having a reliable system for tracking time spent on a case. By a show of hands, less than half of the attendees said they currently do.

Marblestone described a four-part formula to ensure that a takeover is profitable:

  • Prediction of fees and costs. Can you predict what it will take for a case to be profitable?
  • Client communication. How do you communicate the fees and costs up front, especially how unexpected costs will be billed?
  • Services agreement. How are unexpected costs set forth in the agreement? For example, you might bill at an hourly rate beyond a certain point, with a cap.
  • Necessary modifications. Do you have the ability to modify the agreement if circumstances turn out to be different than what you were told?

Limit Risk and the Potential for Litigation

In a takeover situation, Ferenczy noted, your client thinks you will be responsible for everything from now on, even if it happened before you came. She offered four "liability protectors":

  • Your services contract. "First of all, if you don't have a contract, you're making a big mistake," Ferenczy advised. In your contract, you can limit responsibility to warrant past work, outline conditions for representation, discuss charges for takeover processes, and provide for indemnification.
  • Your letters and records. Having all communications and steps in writing protects yourself first, Ferenczy noted, and so is of primary importance -- even if that information is discoverable in the event of a lawsuit.
  • Your E&O insurance. Know what procedures are involved in utilizing your errors and omissions insurance should the need arise, Ferenczy recommended -- not following them can void your coverage.
  • Your ethics. "Think about what you will do if you have to work for a boss or a client who has situational ethics," Ferenczy said. "Would you testify in court against them to defend your own ethics?"

11 Red Flags

Imbedded in the presentation were 11 red flags for any TPA facing a DC takeover:


  • Not evaluating the client thoroughly before you take on the case
  • Not questioning what went wrong before so you know what not to repeat
  • Not planning and communicating the steps you will take
  • Not being the leader


  • Not figuring out whether you want to be profitable and how much you have to charge to be profitable
  • Not communicating the expected fees or changed circiumstances to the client
  • Not taking credit for free stuff


  • No service agreement (or client won't sign it)
  • No limitation on liability for work done by other providers
  • Poor record keeping
  • Voiding your E&O policy because you don't know what it says you need to do

You'll find our other coverage of the 2015 ASPPA Annual Conference in the Conferences "station" on ASPPA Net.