Absolutely no shock Universities being sued over their Plans

There has been an influx of participant lawsuits against private universities for the 401(k) and/or 403(b) plans they sponsor for their employees. That’s like shooting fish in a barrel.

Private universities are being sued because the claims are that the 401(k) plans and 403(b) plans that they sponsor are just way too expensive. Let’s be honest, private universities and colleges aren’t exactly experts when it comes to reasonable costs. I’m still paying off my student loans 18 years after I graduated school.

When you have little concern about costs in your “business”, why would you have concern about the costs of your retirement plan? I can vouch through 18 years of experience that the worst run retirement plans are usually run by businesses that are way too busy in running their own business and aren’t exactly concerned about the costs that they pass on to their clients. Just saying…

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The Rosenbaum Law Firm Review

My latest newsletter can be found here.

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What Makes A 401(k) Plan A Target For Litigation

My latest article for JDSupra.com can be found here.

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Avoid The Norma Principle

The Peter Principle is a management theory concept in which the selection of a candidate for a position is based on the candidate’s performance in their current role, rather than on abilities relevant to the intended role. So the theory goes that managers will rise to the level of their incompetence so they only get promoted until the point where they can no longer work effectively.

I have developed my own management theory: I call it the Norma Principle. It’s the theory that many small to medium sized companies inexplicably favor an employee or group of employees that are actually incompetent.

There are many reasons why that employee or group of employees is favored: it could be nepotism, a warped view of loyalty, or becoming friends with the employees.

A perfect example of the Norma Principle at work was at the very first job I ever got. I was a lowly ERISA attorney working for a law firm associated with a third party administration (TPA) firm. That TPA had many excellent administrators, but for some reason, my boss loved this guy Orville who worked for this TPA. Orville was a nice guy, but a terrible employee. He was a terrible office worker. Then they made him a computer tech guy and he knew less about computers than my late grandmother. Then they made him an employee in the distribution department. Orville almost made a distribution to a former 401(k) participant of $30,000 when they only had an account balance of $18,000. That was a problem. The person in charge of the 401(k) practice actually had to call my boss to ask for permission to fire Orville when many employees were fired for a lot less.

One of the biggest reasons I went into business for myself is because of the nonsense of what I saw as the Norma Principle because I was never going to be “Norma”, I was never going to be favored by any boss whether I was competent or not.

I’ve seen employees favored because of the assumption they were loyal because there were long time employees. Long time employees doesn’t mean that they’re loyal, sometimes people stay at a job because they know how good they have it and some people don’t leave because they cant get hired anywhere else.

I’ve seen employees favored just because the bosses are friendly with them.

I’ve seen employees favored because they were actually incompetent and that made the chief operating officer look competent, the last thing he wanted were employees that threatened him with their competence that made him look bad.

I’ve seen employee who were favored because of nepotism. The law firm associate whose father was a big time partner made partner himself even when he asked whether the law firm I was working at in Boston had a computer system that allowed the backdating of documents.

The employees who should be favored are the ones that do their best, the ones you can trust, and the ones that represent the best value to your organization. The “Norma” in the Norma Principle tends to be incompetent; they tend to backstab fellow employees, and will do almost anything to protect their spot.

To be a good boss, you need to have empathy for your employees. Employees who recognize that there is an employee that is favored not because of what they know and whom they know are going to be resentful and that is going to hurt morale. So the lesson is never to hire a “Norma”, you can hire someone named Norma as long as they are not a “Norma”.

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What 401(k) Plan Sponsors Shouldn’t Forget

My latest JDSupra.com article can be found here.

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Avoid Becoming Friends With Your Employees

There are essentially two types of people at any company: management and the employees.  I always say that I would never hire an employee because I was one (which will change in a few weeks, stay tuned). One of the biggest mistakes you can make in your business as a retirement plan provider is becoming friends with a couple of the employees.

Boundaries are a big deal and there is a clear boundary between management and employees. Cross that boundary and you’re going to have a headache on several fronts. When you become friendly with an employee, it changes the scope of the relationship and that change is always going to be to your detriment as management. Best similar example to that is when I was a Vice President of my synagogue, they wanted to hire a fellow member as a secretary of the office. I was the lone person who spoke out against it. Besides the fact that the member had no experience and has loose lips (which is a concern when it comes member dues and contributions), my biggest point is that it’s hard to fire a member who’s ineffective because they’ll stop being a member after you fire them. If you don’t fire them, then you have an incompetent secretary. Thanks to my big mouth, the decision was shelved because of my strong opposition.

So the point in being friends with an employee is that they stop being an employee and start being your friend. I can’t speak for other people, but I always have strong, positive views of my friends and I always try to see them in the best light and it’s hard to see a friend who is an employee in a negative light. If that employee is ineffective, you either have to get rid of them that will cost you a friendship or you’ll just have a friend who happens to be an incompetent employee.

The other major issue is that have an employee as a friend is demoralizing to those employees who aren’t so chummy with their bosses. Employees who are friends with their bosses are treated far better than those who aren’t and let’s just say that there is a different set of rules for those employees/friends. Having worked for a couple of third party administrators, I can vouch the resentment of those employees who aren’t friends because I was always that employee who certainly wasn’t part of that circle of friends/employees.

Empathy is all about trying to understand how other people feel, so you need to understand what becoming friends with some of your employees will do.

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Don’t ignore your client’s complaints

In my personal life, I think that many people think I’m a pain in the rear end. As someone who used to be passive-aggressive, I try to tell people what bothers me and what I want, so there is no more guessing on how I feel and there is less shock when I make a move or decision. On the flip side, I’m always generous in offering thanks for excellent service and quality of work.

For the past 6 years, my daughter has gone to the same summer camp. The summer camp is family owned and I have always been very honest with them in what I have liked about the camp and what I haven’t and what I’ve liked far outweighs the one or two things I complained about in the past 6 years.

The camp hires many parents for the summer to work as barter for their kids going to summer camp. My wife has been working there for the past two years.  The camp is very big on social media and promotion, so they have hired three parents to serve as their media team. The only problem is that the media team is busy taking pictures of their own children, essentially escorting their children from event to event and taking professional quality photos that other parents who aren’t working at the camp can’t get. Even other parents who work for the summer camp are told that they can’t stalk their children on campus to take photos. So I heard from a number of parents who were upset and I’m not shy to complain while they are because if I don’t complain, they won’t know how I’m disappointed.

Rather than listening to my complaints, they’re ignoring me and ignoring the stream of photos of the media team’s children. They’ve even suggested that my three courteous emails is some sort of harassment. They wonder how I know who are the media team’s kids except the fact that my wife works there and there is something called Facebook and narcissists such as members of the media team post pictures of their children everywhere. Now I ask you, is that the way to treat a customer for the past 6 years especially one who has made referrals that has gotten them paying campers?

The customer is always right and even when they’re wrong, you need to listen to their complaints whether they are justified or not. It is far easier to lose a client than to gain them and when people complain and you ignore them, they will take their complaints and business elsewhere. The retirement plan business is very competitive, unhappy clients will leave especially when they feel that their complaints and concerns are ignored. I worked for a third party administrator who I thought didn’t do such great work and I can tell you that we had someone who was at the helm who would always listen to the client’s complaints whether they were justified or not (most of the time, it was justified). As far as whether the complaints are justified or not, the complaints need to be investigated as to whether they are fact, fiction, or just opinion. Dismissing a complaint out of hand without looking at it first is just a sign that you don’t care how the client feels.

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401(k) Plan Participants want help, give it to them

Charles Schwab announced their 2016 401(k) participant survey and it states the obvious: 401(k) participants need help.

Less than half (43%) of participants know how much they should save for retirement. Fewer that half (44%) have the confidence to make their own 401(k) decisions. Almost ¾ (74%) said would be confident in making investment decisions with the help of a financial advisor.

70% of plan participants said they would like personalized investment advice for their 401(k) account, and 58% wish there was an easier way to know how to choose investments.

What does it all mean? Plan participants need help and they want help. So like the core belief of one of my business idols, Vince McMahon, give people what they want. They are aware that they might not be able to make the best investment decisions, so it’s incumbent on the plan sponsors and their providers to offer something more than just basic investment education. I understand financial advisors don’t want to offer investment advice on their own because of the regulatory hurdles they have to pass, but there are great service provider like an rj20.com that can offer that investment advice service on their part without stepping on the feet for the current advisor.

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You Might Have A Problem With Your 401(k) Plan When….

My latest JDSupra.com article can be found here.

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….And 403(b) Plans are next on the litigation hit parade

It should be no surprise that the rampant uptick in 401(k) litigation is also going to venture into the 403(b) world.

Four class action lawsuits were filed against MIT, New York University, and Yale University. The cases against NYU and Yale involve their 403(b) plans and it was only a matter of time before these type of plans would be targeted.

As bad as how 401(k) plans were run, 403(b) plans are run far worse. They tend to be more expensive and more poorly run than their sibling 401(k) plans. There isn’t as much competition in the 403(b) world and that’s why annuity and insurance company with more expensive proprietary products dominate the space to the detriment of their plan participants.

I can’t tell plan providers what to do, but if they have a good service at a reasonable fee, it would make sense to explore that 403(b) space for the benefit of themselves and their potential clients.

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