The Rosenbaum Law Firm P.C. Blog

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.

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.

My latest JDSupra.com article can be found here.

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.

With the proliferation of litigation against 401(k) plans, it should be noted that it focuses on only one thing: cost. Litigation surrounding share classes, proprietary funds, and overall plan expenses is all about plan participants shelling out too much in fees or at least that’s what these plaintiff ERISA litigators are arguing about.

Eventually ERISA litigators will be done with litigation concerning fees. There will be those ERISA litigators that will still focus on fee litigation until they waste their time arguing cases where a plan participant is paying 5 basis points more than maybe they should because the sad fact is that many ERISA litigators don’t understand that such litigation is effectively trying to get blood from a stone. We will eventually reach a point of 401(k) fee litigation overkill if we aren’t there already.

The next frontier in 401(k) litigation isn’t going to be about fees and it’s going to be the issue that most plan sponsors and providers neglect. It’s also going to need the right climate and that climate is going to be a bad market for investing. In my opinion, a fertile ground for litigation is going to be surrounding losses incurred by plan participants where they direct their own investments under ERISA §404(c) and the plan sponsor doesn’t provide enough information for participants to make informed investment decisions.  Too many plan sponsors think that they are bullet proof under ERISA §404(c) as it offers them absolute liability protection from losses incurred by plan participants when they exercise control over their investments. The problem is that it’s not the case, protection is a sliding scale and is dependent on how much a plan sponsor informs participants about investments and the investment options offered under the plan. Too often, plan sponsors offer little information and no investment education to plan participants. I’m sure that’s the case with many large plans, which makes them easy pickings for hungry ERISA litigators.

People laughed at me when I suggested that small to medium sized 401(k) plans were at risk for litigation. I’m sure there will be those that laugh at my suggestion that the next big thing of 401(k) litigation will be ERISA §404(c), time will tell again if I’m right again.

There is a proliferation of litigation against plan sponsors and against bundled 401(k) plan providers for offering their own proprietary funds in 401(k) plans for their employees as well as the 401(k) plans they administer their clients.

Mutual fund companies went into the 401(k) administration as a bundled provider because they saw it as an inexpensive way of distributing their mutual funds. More distribution of mutual funds is going to equal more management fees and that means more money in the pockets of the mutual funds.

People don’t hire Fidelity as their bundled provider solution for 401(k) plans because they love T. Rowe Price and Vanguard. They hire Fidelity because they love their funds and think that this will also lower their administration costs.

Now if plan sponsors and bundled provider get targeted with enough litigation for offering proprietary funds in a 401(k) plan, eventually these bundled providers will decide that it’s too costly to be in the administration business because rising litigation costs no longer make this a cost effective distribution of their mutual funds.

I believe that thanks to litigation and the forthcoming fiduciary rule, more bundled providers will exit the 401(k) industry just like many did with the fee disclosure regulations being implemented in 2012. Its just common sense.

One of my least favorite days during the year is my birthday because I’ve been accustomed to it being a so-so to a bad day. I took my Criminal Law final on that day during my first year at law school and I was abandoned by my “friends” on the day I turned 21. That being said, my worst birthday is when I had to speak at a union convention in Albany or at least I attempted to speak.

With all due respect to the people who live near Albany, New York, it’s not my kind of town probably because of my continued disdain of our state government. That being said, the law firm partner in charge of this client couldn’t make the union’s annual conference, so I was asked to speak instead as well as a junior partner.

The topic was retirement plans and ERISA and the junior partner had limited knowledge. He wasn’t a very good public speaker and he didn’t have a great, friendly personality. He also didn’t want to follow an outline, so he thought he could just wing it and talk for 30 minutes.  He could have done the right thing and let an ERISA expert like myself to speak, but he let his ego and title get in the way. I learned close to the end at the firm that associates were seen, but not allowed to speak.

So I drive the 3 hours to Albany on my birthday and we go through the presentation. It was an absolute disaster. At one point, the junior partner lifts his ERISA book up like it’s the Bible and he was a Minister. It wasn’t the Bible and he certainly didn’t sound like he could command a Church or Synagogue.  Needless to say, the session we presented was the worst rated breakout session during the entire union convention.

The point here is that when you’re the person in charge of an organization and there is someone better to speak, step aside and let someone who can do a better job do it. When I was working at a firm, a client down south needed expertise on adding a new feature to the plan. The partner who thought he knew it all and always wanted to be the face of the organization decided to speak instead even though he didn’t practice ERISA for 20 years. Needless to say, the discussion down south was so good that the client fired us..

Getting clients is a hard thing to do, so getting your ego in the way when you have people in your organization that can do a better job is silly. There is no shame in letting the stars of your organization shine; it doesn’t mean your star gets eclipsed.

My latest newsletter geared towards retirement plan professionals can be found here.

My latest jdsupra.com article can be found here.

My latest newsletter can be found here.