Wealth equals choice. Choice is the ultimate power and the reason people pursue wealth in the first place. The ability to choose among many good options is the key to building an attractive lifestyle. Wealthy people are loathe to trade away choice unless very well compensated. That’s a common observation across all markets and professions.
The Edison International case involves a plan sponsor who put “retail” class shares in its company 401k plan when identically managed but lower cost “institutional shares" were available. The difference in the two share classes was a 12(b)1 fee markup that was deducted from participant assets and used to pay administrative costs of the plan. The Supreme Court will be hearing the case and will likely weigh in on how and when plan participants are allowed to sue plan sponsors.
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401k Investment Liability In recent years, several high-profile lawsuits have alleged that employers violated their fiduciary duty to prudently select and monitor the investment options offered in their 401k plans. These lawsuits have targeted larger plans, but the fiduciary standards cited apply equally to both large and small business retirement plans.
The primary reason employees do not participate in 401k plans is their personal budget. They simply do not believe they can put money away without a significant change in lifestyle. No matter what other incentives an employer may offer – e.g., matching contributions, financial advisors – budget concerns trump all other considerations. No matter what, they won’t participate if they don’t think they can afford it.
Let’s compare two small business 401k plans and you tell me which company is getting the better deal.
At 85, John Bogle remains a leading, and fiercely positive, advocate for the long-term future of 401k plans. Last Tuesday he testified before – or more accurately, unloaded on - the Senate Finance Committee at its hearing on retirement savings plans. Love him or hate him, you must admit he speaks his mind. He detailed the flaws in the current regulations governing retirement plans. And he presented pointed criticism of the mutual fund industry for putting profits above fiduciary duty. His testimony is a “must-read” for anyone engaged in the debate for retirement plan reform.