Randy Myers, CFO Magazine
May 8, 2006

401k Fees

I believe this article is very misleading and fails to take into consideration the tremendous amount of compliance, IRS and DOL that qualified plans have to comply with. The providers involved in this area have to be compensated for their services. In many cases the fees being charged today are the basically the same as in 1983. Operation costs have significantly increased over the years. Also, the information about the Nationwide is incorrect because the company does not serve in a fiduciary roll or assist in the selection of the funds available for plan participants. A qualified plan is not a commodity, it requires a professional service. Just ask any plan sponsor that has gone through an IRS audit or DOL investigation.

Posted by Jeff Atwell | May 26, 2006 10:43 AM ET

Plan Fees

The problem is a little broader than what you're suggesting here. There are "bundled" and "Unbundled" service providers that include "Wrap-fees" and "Unwrap-fees". There are really four separate costs associated with a typical 401(k) plan: Plan Administration, Recordkeeping Fees, Investment Services, and Trust Services. The marketplace long ago pushed the notion of "one-stop shopping" where we heard slogans like, "We Do It All For You". Mutual fund companies, insurance companies and banks pushed this hard.

Employers/Plan Sponsors were duped into believing that if they subscribed to one of these service providers, one with a long history and some creditability, they could relinquish most if not all of their duties and responsibilities associated with the Plan. We called this ?outsourcing? and employers moved away from having any in-house expertise. There are few CFO?s and HR Directors who fully understand the scope and magnitude of operating a 401(k) plan along with their fiduciary responsibility. Even in larger companies, we?re seeing examples of how dependent CEO?s are on their staff so people like Kenneth Lay of Enron fame are caught shorthanded.

If you assume the Board of Directors appoints a 401(k) Plan Committee to monitor and oversee the plan that sounds good, and may even feel good. Yet until we understand, the folks on the ?Committee? have had little or no training with little governance in place do we really begin to grasp why so many important issues, like fees and costs, are overlooked. They rely on their service providers for guidance, and they lack the education to ask the hard questions.

In a bundled plan where the plan participants pay all the fees and costs, we see disproportionate cost sharing flourishing because the costs are based on a percentage of account balances. The consequence is those with the larger account balances pay a much larger percentage of the total costs.

Until the total plan cost is disclosed on the participant?s monthly or quarterly statements with line itemization like, Plan Administration, Recordkeeping Fees, Investment Cost, and Trust Services, people are not likely to complain or start asking tough questions. As long as the costs continue undisclosed, folks will continue to assume its all ?free?.

The SEC needs to require complete and total disclosure of all transaction fees and who?s getting paid. The DOL needs to insist on total accountability and complete disclosure with reporting at all levels. Even if some of the costs are disclosed, how can anyone have the confidence all the costs are reported until the numbers add-up? To suggest that the average plan sponsor can dig these costs out is a nice idea, but it won?t happen until its required.

Posted by Rick Blain | May 8, 2006 2:58 PM ET