I look at a lot of 401k service provider fee (408b-2) disclosures. At least 2 per week. Some are excellent and straight forward, while others are as clear as mud. This is a problem for 401k fiduciaries. It’s their responsibility to ensure their 401k plan only pays reasonable plan expenses. When 408b-2 disclosures are unclear, satisfying this responsibility becomes more difficult.
I have always liked New Year's resolutions. They are a great excuse for ending bad behaviors or starting good ones. Here’s one for all small business 401k sponsors – “I will evaluate my plan fees for reasonableness.” Let me explain why…
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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.
I write to bury revenue sharing, not to bash it.
Service intended to help small businesses take current DOL fee disclosure regulations a step further.
Ted Benna invented the 401k plan in 1980. Today we think of it as a technological stone age, but back then we celebrated the wondrous improvements technology was bringing to financial markets. Charles Schwab had opened a “discount brokerage” in 1975 after deregulation. It now only cost a few hundred dollars to make a stock trade. The “no-load” mutual fund was gaining market share. A young upstart John Bogle at Vanguard was putting pressure on the mutual fund industry. Loads fell to “only” 4.5%. Mainframe computers (with front doors) were communicating with each other over phone lines, thus allowing for 24-hour stock quotes and automated trading.