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Thursday, November 21, 2013

Who’ll Slay Your 401k Cost Dragon - You or Your Participants’ Lawyer?


Several weeks ago, we posed the question, “Does caring = compliance?”  Of course the answer is "no." But the point was simply that if plan sponsors show genuine concern for the well-being of plan participants, much (if not most) of their compliance challenge will fade away. It’s really not that technical, difficult or costly to eliminate the most common causes of failed discrimination tests in 401k plans.

A subset of that genuine concern, yet perhaps a bigger issue, is fiduciary responsibility.  As a plan sponsor, your obligation as a plan fiduciary – in effect, caring for your participants’ contributions – is literally codified in the law.  You don’t really have to agree to care – the law just declares it for you.  Service providers might agree to accept fiduciary liability for the plan (or not) – but at the end of the day, the obligation rests with the plan sponsor. You really can’t avoid it.  Is this something to fear?  We don’t think so – but only if you really do care about protecting your participants’ money.

Let’s face it.  In most plans, virtually all the money belongs to participants.  It’s their money that’s being invested and they are likely paying the lion’s share of plan expenses too.  Have you done everything you can to make sure they are getting the best deal?  That they are not paying too much?  That they’re able to maximize the return on their investment?

When they make the decision to save for their retirement in your plan, employees are trusting in your due diligence.  You’re their sword and shield.  You’re their knight in shining armor.  But thy name be not Lancelot.  Thy name be Fiduciary! All the responsibility, none of the glamour, right?

The spate of 401k-related lawsuits is marching relentlessly toward what will likely be seen as a “sudden revelation” when it occurs: The “discovery” that the predominant plan investments, actively-managed mutual funds, and all the expenses loaded onto them are NOT REASONABLE.  They are omnipresent, but they are not reasonable.  A true Lancelot would slay this dragon…

The latest marquee lawsuit has Mass Mutual’s participants suing their plan over hidden and exorbitant plan expenses. Fidelity’s participants are suing their plan as well.  You can Google the specific complaints but your plan likely is no better off.   If their attorney knows what he’s doing, the relative performance and cost of the Fidelity funds in that plan are going to get pounded -- and all the facts will support the plaintiffs’ position.  The Mass Mutual case goes to a different place on fees and could be a bellwether, because the complaint addresses the murky practices of internal revenue-sharing (read hidden compensation) that exist in virtually every insurance company-based plan, including yours.

Your 401k provider is almost certainly telling you your fees are reasonable.  Heck, they may have given you a 33-page disclosure document to prove it.  Even a giant dragon can hide if the fog’s thick enough!  But participants are increasingly seeing through the fog and just the bringing of lawsuits proves one thing:  Participants are willing to take up arms against the dragon, even if their Lancelot is not.  And if thy name be Fiduciary, thee go down when the fight begins.  Who even cares what happens to the dragon?  He deserves his fate.

The good news is that if you care, you can squash the dragon like a bug!  And your participants may even be inclined to polish your armor or put you up on a white horse.

Posted by 401K Revolt at 5:10 AM