Controversy in the courts
Fees, and particularly revenue sharing arrangements,
are the focal point of the recent spate of lawsuits
brought about by, among other law firms, the St.
Louis-based firm Schlichter, Bogard & Denton.
So far that firm has filed suit on behalf of employees
from more than a dozen Fortune 500 companies,
including General Dynamics, Northrop Grumman,
United Technologies, Lockheed, Caterpillar, John
Deere, Unisys, Boeing and International Paper.
The companies targeted by the law firm generally
have 401(k) plan assets in excess
of $2 billion.
It would be nice to think that altruism is the law firm's underlying motive for engineering these lawsuits. Plan participants deserve to pay the lowest fees possible to ensure a decent retirement. But Stephen Saxon, an attorney with Groom Law Group, paints a different picture.
"They're not an ERISA firm," he said at the ASPPA 401(k) Summit. "They won a ton of money in asbestos litigation. They won all these asbestos cases and they're looking around for the next area and they found it in the ERISA area."
It's clear that the issue of 401(k) fees is upfront and center in various government forums. But there seem to be two schools of thought about how much you and I need to know about fees. If it's so hard for service providers to explain fees to plan sponsors, how in the world can anyone explain fees to simple folk like you and me?
Focus on fees to participants
This concern will be addressed this spring, when the Department of Labor is expected to propose new disclosure rules for plan participants. At long last, we may be able to get a handle on the expenses in our company retirement plans. Or maybe not. Some people argue against too much disclosure.
|The buzz about 401(k) plans
"What I want when I look at my
401(k) plan, if I do at all, I look
at net investment performance," says Saxon.
"I don't look at what the custodians get
paid, the record keepers get paid. I don't look
at what the investment managers get paid. I'm
looking at whether I'm making money. Are these
funds performing well or not? And so requiring
loads and loads of financial information about
all these fees separately, each separate fee disclosed,
would put folks in an information-overload situation."
But what if, like right now, we're facing a volatile market situation and our investments are heading south? How much of this can we attribute to a declining Dow and how much to burdensome fees? At this point we have no way of knowing whether we're getting fleeced by fees or by turbulent market forces.
Reish argues in favor of more fee disclosure rather than less. "I can't imagine that openness and honesty would ever result in a problem -- unless people are overcharging for their services. While that would be a problem for them, it would be good for plan fiduciaries and participants to have that information and, informed in that fashion, to reduce the fees and costs of the plan."