The Rosenbaum Law Firm P.C. Blog

I was a Vice President of a synagogue once and the biggest problem I had is that the people who had a greater say than I did were the same people who turned a synagogue from 750 member families to 300. They were ineffective and they didn’t understand how incompetent they were.

If your company’s retirement plan got into some trouble because the powers that be who run the plan (whether it’s the C.E.O., human resources director, or retirement plan committee) took their eye off the plan, it may be a time to replace them especially if they haven’t learned from their mistakes.

They often say that people can’t change, but I believe that people can change if they learn from their mistakes. If their arrogance doesn’t let them learn from their mistakes, then they will never change and they will consistently make the wrong choices. Sounds like most of my family.

When I was at my old law firm, the 401(k) plan was poorly run there. The Human Resources Director who was the trustee didn’t bother to hire a financial advisor, she provided no investment education to participants, and plan investments weren’t updated for 10 years. In addition, she had no idea the third-party administrator (TPA) received revenue-sharing payments. Based on my advice, they hired a financial advisor. It wasn’t the one I recommended, but at least they hired one. The Human Resources Director eventually without my input, hired a new TPA. Many years later after I left, someone told me that the plan owed a lot of money in corrective contributions that made no sense to me, but it was the same Human Resources Director in charge. Pat always thought she knew best and she didn’t.

A retirement plan that had major compliance issues will have them again if the powers that be that didn’t learn from their ways will make consistent poor plan provider selections like pat. It’s my opinion is that these powers that keep on making bad choices should step aside and let the people who can make the right choices take their spots. It’s hard for people with large egos to do such a thing because their egos won’t let them understand that what they have been doing all along is wrong.

You must know about the shoemakers’ children and how they go barefoot and have no shoes. In the retirement plan industry, we have retirement plan providers and their employees’ retirement plans.

I know, I have been there. The third-party administrator I once worked for didn’t have a great plan, it was often alleged we switched platforms to salvage our premier pricing with a certain insurance company. Don’t know if it was true, but that’s what was alleged.

So for me, it’s no surprise that mutual fund companies are being sued by former employees over their own 401(k) plan. While I don’t know all the facts and they will be decided in the courts, one fact (if true) fascinates me.

I often waste time analyzing irrational behavior through rational eyes and I always ponder: “what were they thinking?” So when I hear that part of the complaint is that all of the mutual funds in a mutual fund company’s plan were funds from that fund family, I ask: “what were they thinking?”

When you have thousands of mutual funds out there and hundreds of mutual fund companies, it’s just amazing that any plan sponsor (whether it’s a mutual fund company or not) thinks it’s prudent that every fund on the plan’s lineup is from the same mutual fund company. It doesn’t look right and it doesn’t look prudent, especially when there is no mutual fund company that has superior success in every sector of the market. In addition, any plan that only has funds from the same mutual fund company is often being administered by bundled providers who are mutual fund companies (i.e, plan being administered by T. Rowe Price with only T. Rowe Price funds). How is a plan sponsor able to offer a rational explanation that it was prudent to select mutual funds from one company? I don’t think they can, especially when the mutual fund company is one of the plan providers.

Often in the retirement plan business, if it doesn’t look right, there is usually something wrong. Any plan using the mutual funds from only one mutual fund company is a plan with something wrong.

I work in an industry that has a terrible reputation. Not the retirement plan industry, the legal industry. One of the big parts of the legal industry is where they create awards, sell ads in a magazine or just make money on awards. So with so many awards out there for Best Lawyer, I’ve seen quite a few bad lawyers win these awards.

One of the worst ERISA attorneys I ever met (I worked for the third party administrator and she represented a mutual client), happened to win one because her law firm pt out a big ad in the Best Lawyers magazine.

When people tout awards they won, I get suspicious if I haven’t heard of the award or the award is tied to ads. Heck, the former managing attorney at my law firm that I derided for the past 11 years got a boatload of these top CEO awards and she shrunk the firm in half during the length of her 12-year reign.

The point is when picking plan providers, don’t get hung up on the awards they win.

The son of a man killed by a Colombian guerrilla group can obtain money from a 401(k) account connected to the perpetrators, a Massachusetts federal judge ruled, deciding that a terrorism law can trump the anti-alienation rights of a participant under ERISA

Fidelity Investments can turn over 401(k) assets to the victim’s son under the Terrorism Risk Insurance Act of 2002 (TRIA) without violating the federal law protecting retirement plan assets from being used for other purposes (alienation of benefits).

The Court held that since TRIA begins with a “notwithstanding” opening clause, that means it is intended to override any conflicting federal statutes, including the Employee Retirement Income Security Act.

The lawsuit was initiated by Antonio Caballero to execute a judgment against Fuerzas Armadas Revolucionarias de Colombia and Norte de Valle Cartel for the kidnapping, torture, and murder of his father. Caballero asked Fidelity to turn over about $200,000 that is held in connection with these defendants, and Fidelity sought a court ruling on whether it could turn over money held in a 401(k) account without violating ERISA’s anti-alienation rule. The judge ruled that Fidelity could distribute the money to Caballero, but only under the same terms that the owner of the 401(k) account would have been able to access the money.

If there is one situation that I see consistently with plan providers landing in trouble, a good chunk of the time is when they put their needs ahead of the needs of their clients. The needs of the client should always come first and your needs come a distant second.

Recently, I came across a situation where the broker of a participant decided that working within a brokerage window wasn’t a plan, so they conspired with the participant to get an IRA distribution to an IRA on the broker’s platform while the participant was actively employed and way younger than age 59 ½. This situation put the participant and the participant’s employer, which will necessitate a voluntary compliance filing and likely early distribution penalty against the participant. The broker did what was best for them, and let us just say that it will bite them in the rear end.

With a push for fixed income products, there is n shock that  BlackRock is putting annuities in American workers’ 401(k)Plan.

The investment giant said five employers have signed up for a new retirement product that will allow workers to lifetime annuity payments.

BlackRock’s offering is interested because there are a major asset and isn’t an insurance company; the annuities in its plan will be issued initially by insurers Brighthouse Financial Inc. and Equitable Holdings Inc. The annuities will be part of a new series of BlackRock target-date fund offerings. 

When it comes to Super Hero movies, the best by far is The Dark Knight. It was a gripping drama with well-written characters that just happened to be about superheroes and villains. The movie is full of great, thought-provoking lines. One great line that isn’t so well remembered as others is when Commissioner Gordon tells his son about Batman: “He’s the hero Gotham deserves, but not the one it needs right now.”

I’m sure as a plan provider you’ve met potential plan clients and you thought being hired was a slam-dunk. Maybe the incumbent plan provider costs too much or didn’t do their job. Maybe the providers you were competing against didn’t have the experience you did. Yet when it came time to choose a plan provider, you didn’t get picked and you’re in complete shock.

There are many situations in my life where I thought I was a great asset as a person, as a relative, as a volunteer, as an employee, and a plan provider where I wasn’t what they needed at the time. I understood in those situations is that while it may be clear to you, some people don’t understand what the clear choice is or there may be an underlying reason why I wasn’t the chosen one. How many times did you compete against another plan provider and then you found out that they were either related to a decision-maker or they were “juiced in”? Maybe the other plan provider developed a deeper connection with the decision-maker even though you do a better job?

Whatever the reason is, don’t take it personally. These things happen and you can’t let it get to you because tomorrow is another day and there are enough plan sponsors who need a plan provider like you. So go back to doing what you do best.

I always say that the reason I don’t have employees is I was an employee once too. My joke about employee-employer relations is that no employer ever thinks they pay their employees too little and no employee thinks they get paid too much.

I recently dealt with the former employee of a client and the employee adamantly refused to provide information to the plan sponsor. It was to the point that the failure to furnish the plan sponsor with this information would have set back the former employee over $15,000 in taxes. That angry former employee just didn’t care. He would rather pay unnecessary taxes than provide the former employer with a simple asset statement. The point here is that one of the reasons that you should keep your plan in order, so you don’t have to deal with former employees, who may be so angry, that they will drop the dime on you through a complaint to the Department of Labor, or a needless lawsuit.

When I was a Vice President of a synagogue, I knew the position was hopeless because I was surrounded by leadership that took them from 750 families to 250 families. When I look at my old law firm, they pretty much have the same leadership that had them shrink by 50% since I left.

The crazy thing about the leadership at private organizations is that when it doesn’t work, it usually doesn’t change. Unlike publicly traded companies where you have the opinions of shareholders, small to medium-sized organizations don’t have the opinions about why the current leadership isn’t working.

What separates a business that can thrive and an organization that won’t, is the ability to look within and figure out what isn’t working and what needs to change. A dying organization can’t change because it won’t look in the mirror and figure out it should change.

The thing I hated most of my time at that certain Long Island law firm was that the only thing they ever seem to care about what how many hours you billed per month. I still contend that monthly billable requirement leads to the fudging of hours, especially when so many attorneys were always late in meeting that billing recording deadline. They never seemed to care whether the clients got the best legal care.

So much of this business is tied to revenue and basis points. Regardless of the nature of your retirement plan practice, the most important metric needs to be client satisfaction. Without good service, you don’t have clients and if you don’t have clients, you won’t meet your monthly or quarterly billing requirements.