Focus on 401(k) Plan Fees
A flurry of lawsuits and investigations about 401(k) plan fees is moving center stage. Wall Street Journal reporter Tom Lauricella writes that New York State Attorney General Elliot Spitzer is close to concluding a settlement with a large insurance company "over allegations that it took undisclosed fees to promote certain funds in a retirement plan for New York State teachers." (See "Spitzer Aims At Another Mark: Fee Disclosure," Wall Street Journal, October 10, 2006.)
In "Suits Claim Excessive 401(k) Fees at 7 Firms", LA Times reporter Kathy M. Kristof describes allegations of excessive fees being borne by 401(k) plan participants at some of this country's largest businesses. Seeking class action status, the cases focus on whether "employees were charged millions of dollars in excessive management fees, which often were hidden in obscure agreements and not disclosed to the workers."
According to the U.S. Department of Labor website page entitled "Meeting Your Fiduciary Responsibilities", decision-makers are urged to analyze whether fees are "reasonable" when deciding on a money manager. In addition, fiduciaries should "compare all services to be provided with the total cost for each provider", "ask prospective providers for a detailed explanation of all fees associated with their investment options" and "specify how fees are paid."
New regulation is a factor too. ERISA attorney Fred Reish offers that the selection of a fiduciary advisor, pursuant to the Pension Protection Act of 2006, requires employers to "satisfy a fairly complex set of requirements that they did not need to satisfy in the past". One possible effect is that participants are harmed because of higher fees, "due to increased compliance burdens."
In the interest of full disclosure, I am writing an article with senior banker Ed Lynch and attorney Fred Reish about the rigorous process of comparing fees on an "apples-to-apples" basis. Send an email if you would like a copy of the paper when it is published.
