Everyone Means Well

March 18, 2019 in Fee Disclosure

Hidden fees in retirement plans will continue to be a hot topic as long as mutual fund fee subsidies are used to offset employer costs associated with the maintenance of 401(k) plans. The media is doing their part to inform American workers about their “free retirement plan” not being free. The PBS show “Frontline” aired a special called, “The Retirement Gamble” which has caused quite a stir for the industry and plan sponsors alike.  The New York Times chipped in with a feature article entitled “Finding, and Battling, Hidden Costs of 401(k) Plans” . It featured Ronald Tussey, the named plaintiff in Tussey v. ABB, Inc. which is one of many highly publicized “excess fee” class-action cases that have commenced over the past few years.

While critics feel the media is not overly accurate in their presentation of the issues, their overriding theme of “question and understand the costs of your retirement plan” is valid. Creating distrust in our retirement system is not an ideal outcome, but they are just doing their job. Likewise, plan sponsors are not out to gouge their employees with high fees. They feel they are taking the proper steps as fiduciaries to keep plan costs reasonable while engaging competent advisors and service providers to assist them with the management of a very complicated employee benefit. Everyone (generally) means well.

How will you answer "hidden fee" participant questions? 

As a retirement plan sponsor and fiduciary, meaning well is a great start. But there are two other important steps that fiduciaries can take to instill confidence in their employees who raise questions (and keep their company out of the news). Step one…have an independent expert not associated with the plan evaluate the reasonableness of the fees participants are paying (and take action if the fees are high). Step two…remove mutual fund subsidies from the equation. Select the lowest priced mutual fund share class available to lower costs and charge a direct fee to participants that they can see and understand. Once completed…breathe easy.

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