The Rosenbaum Law Firm P.C. Blog

22 years in the retirement plan business and I have seen quite a bit. Two disasters that I witnessed close by involved the fall of a fiduciary and the disestablishment of a very successful third-party administrator (TPA).

I am not trying to bring up some old sordid details. While the situations were dissimilar, one similar trait held by both providers led to their downfall: arrogance.

If there is one trait in business that can be fatal (besides stealing from your clients) is arrogance. You shouldn’t think that you’re bigger than this business and be stubborn to change. I always say the beauty of this business is that I learn something new every day, whether it’s a change in the law or regulations, or learn about a new provider or whatever it may be. The arrogant provider is immune to the advice and has little care in changing their business model even if the industry is changing around them.

The point is that the providers who thrive in this business aren’t arrogant, they are always willing to listen to new things and willing to learn new things.

Like George Costanza who always tried to leave on a high note in an episode of Seinfeld, I always try to leave at the right time. Most of the time, it’s the right time. Sometimes it’s like the last episode of Breaking Bad. At least with Felina, there was more blood.

When you’re the brain trust of a retirement plan provider, it’s hard to step aside. When is it time to step aside and let someone else lead? When you start to have interests that are starting to dominate your time

When I had my first job, I was an attorney for a law firm run by the principals and later the leadership of a third-party administrator (TPA) when they got bought out. Our biggest problem is that we had too many chiefs to support the business. The biggest problem is that the leadership spent too little time in the office. There was one partner who was busy with his boat, which was an actual tugboat. We had another partner who had other interests especially the local country club. The leadership in the office was never around Friday afternoon and the inmates started to run the asylum. It was also a great opportunity to hit the golf course myself.

The retirement plan business is a tough business and an ever-changing business needing a lot of concentration. Over the past year, there were times I lost concentration because of outside activity and it negatively impacted my business and that’s a problem when I’m nowhere near retirement.

I’m not suggesting you should be put out to pasture because you have an apartment in Florida for those weekly 3 day weekends or you have a spouse in another country, it just means you need to step aside and someone else fills the leadership vacuum.

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.

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 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 don’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 can’t 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 was employees that threatened him with their competence that made him look bad.

I’ve seen employees 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”.

Nestle is the latest target of ERISA litigators and is being sued 0ver excessive administrative fees.

The Nestle Plan has more than 39,000 participants and approximately $4.2 billion in assets.

The complaint in the suit alleges that the plan’s expenses equal to $60 a head, about double what should be charged for a plan of that size. The lawsuit also attacks the use of managed accounts, but the complaint cites a lack of actual knowledge on specifics concerning the plan’s decision-making process.

We will see how it plays out.

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

My latest newsletter can be found here

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

Someone I really respect in the industry posted on Twitter that her husband’s certified financial planner (CFP) told him that people who wear masks in this COVID pandemic as her husband was wearing a mask. The CFP just lost a client.

Regardless of your politics, keep it to yourself. Don’t make political jokes. Keep politics out of your LinkedIn posts. It’s so hard getting clients, why lose one over politics?

I’m very opinionated, you know that. My opinions are just opinions, based on my experiences for 22 years as an ERISA attorney. Mainly, they are still based on my near 10 years as an attorney working for third party administrators (TPAs).

When you’re an ERISA attorney for a TPA rather than just one who has only been in private practice, you understand that certain plan provisions cause more errors than others. I’m a strong proponent of limiting loans to one outstanding at a time because I’ve seen TPAs make mistakes on paying off and accounting for multiple loans. There are other provisions I like and don’t like and it’s all about minimizing the potential for plan mistakes. Sometimes, you have to be a Scrooge to facilitate the ease of plan administration. I’m sure other people in the industry have different opinions, but when your job as an ERISA attorney for a long time was putting out administrative fires, you trying to avoid starting new ones.