401(k) Fee Letter to Trustees

If you were one of the "lucky" ones, you may have noticed a new item in your mailbox. According to Wall Street Journal reporter Kelly Greene, a letter about 401(k) fees has been sent to roughly 6,000 companies. The author, Ian Ayres, is a law professor at Yale University. The message is that some companies are paying too much in fees and that offenders can expect to see their name in lights. In "Letters About 401(k) Plan Costs Stir Tempest" (July 24, 2013), Greene writes that critics have pounced on the age of the data used to determine whether monies paid to service providers are "too much" or "just right." Certainly stale inputs or numbers that are overly broad could lead to accusations of a Goldilocks porridge test instead of a rigorous assessment of costs. Since the final paper is not yet published, it is impossible to gauge details of the rigor applied in assessing fee levels.

What is particularly interesting to me is that various articles about the letter have generated large numbers of comments with no apparent consensus about the helpfulness of the forthcoming study. (The study is said to have extracted data from federal regulatory filings.) Some readers say "bravo" to a topic that demands attention. Others say "not so fast" unless you incorporate an assessment of fund performance, identify what services are being offered and review the quality of vendor support.

Several senior ERISA attorneys have been quick to comment, perhaps because 401(k) fee litigation is still a reality for more than a few sponsors. In "Much ado about nothing...or is it?" (July 18, 2013) Nixon Peabody lawyers Jo Ann Butler and Eric Paley point out that even the U.S. Government Accountability Office ("GAO") document entitled "401(K) Plans: Increased Educational Outreach and Broader Oversight May Help Reduce Plan Fees" (April 2012) addressed limitations of the Form 5500. Attorneys Butler and Paley add that high fees do not necessarily constitute a fiduciary breach and that "ERISA does not require a plan to offer the lowest cost investments available, nor that they even fall within a particular range." Instead, decision-makers with fiduciary responsibilities must select investments "with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims." When I asked Attorney Paley for a comment about what he deemed the key take away point, he replied that the letter may "upset the plan sponsor community, though it remains to be seen whether Ayres' study will serve as a catalyst to more expansive plan fee litigation."

Advocates point out that any heightened transparency about 401(k) fees that participants pay is a good thing. In "A Professor Puts the Scare in Plan Sponsors" (July 22, 2013), John Rekenthaler describes "annoyances" as part of the deal. A Vice President with Morningstar, he adds that "The 401(k) plan has given fund companies nearly $3 trillion in incremental assets -- $15 billion in annual revenues..." and "permitted corporations to shed the burden of guaranteeing pensions." He states that "Those benefits for fund companies and plan sponsors don't come for nothing. They come with a spotlight."

What should be a point of universal agreement is that facts and circumstances must be considered in evaluating the prudence of any fee arrangements and the related monitoring of service providers.

Source: http://feeds.lexblog.com/~r/PensionRiskMatters/~3/xY6pRN-fe-8/

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