As we get closer to the plan-level fee disclosure deadline this summer, we will hear much, much more about 401(k) plan fees and costs. In addition, different parties will frame the fee discussion different ways. Some will argue that it is prudent to determine whether 401(k) plan fees are reasonable by taking an "all-in fee" approach; others will argue for an “unbundled” approach. Because plan sponsors are charged with determining whether plan fees are reasonable, plan sponsors need to understand the differences between the "all-in fee" approach versus the "unbundled" approach, what a recent court decision has to say about this, and how this discussion might apply to your 401(k) plan.

I started a series of posts regarding the recent Tussey v. ABB (“ABB”) decision. For those readers that would like to review the facts of that decision or read the first post, you can do so here Lessons Learned from the 35 million judgment in Tussey v ABB 401k fee case Part1.

As reported recently in The Wall Street Journal, Congress has 401(k) Plans again under the microscope. But this time, their intention is to look for ways to raise tax revenue and streamline the retirement savings process for lower income Americans.  

The phrase “lessons learned” is a military phrase defined as “validated knowledge and experience derived from observations and the historical study of military training, exercises, and combat operations that leads to a change in behavior at either the tactical (standard operating procedures (SOP), TTP, and so forth), operational, or strategic level or in one or more of the Army’s DOTMLPF domains.” Army Regulation 11 – 33. The Army believes in the concept so much that it established the Center for Lessons Learned over 25 years ago to “to glean information from combat experiences and re-tool that information into usable lessons for the modern warrior.”

Hardly a day goes by where I don't read an article touting ETF's as the next big thing in 401(k) plans. Oh sure, ETF's offer tremendous benefits over traditional retail mutual funds. Some of the key benefits of ETF's in 401(k)s include:

Corporate Executives Suffer Asymmetrical Risk/Reward as ERISA Fiduciaries

Many company executives serving as 401(k) fiduciaries to their corporate retirement plans may not realize that they are suffering from what we call asymmetrical risk/reward. Asymmetrical risk/reward occurs when the incremental legal or personal risk associated with a role or duty far outweighs any incremental reward for performing that duty. In that vein, 401(k) plan fiduciaries are said to have the ultimate thankless job. They receive little, if any, credit when things go well, and all of the blame and potential personal liability if things go wrong.

The Sixth Circuit recently decided the Pfeil v. State Street Bank case (“State Street”). While the facts of the case pertain to the prudence of having General Motors’ stock in the General Motors’ 401(k) plans in 2008 and 2009, the case’s holding on Section 404(c) is not limited to stock funds.

Tom Reese posted the following article on 401k fees in the Washington Post yesterday.

"In the months ahead, when employees across the country open the quarterly statements from their retirement savings plan, the executives overseeing those plans may face some tough questions.

Specifically, the officers of a company responsible for their 401(k) program will need to be prepared to explain to their employees that nothing has actually changed — despite the fact that their employees will be looking at statements which appear to be showing new fees.

Many company executives serving as 401(k) fiduciaries to their corporate retirement plans may not realize that they are suffering from what we call asymmetrical risk/reward. Asymmetrical risk/reward occurs when the incremental legal or personal risk associated with a role or duty far outweighs any incremental reward for performing that duty. In that vein, 401(k) plan fiduciaries are said to have the ultimate thankless job. They receive little, if any, credit when things go well, and all of the blame and potential personal liability if things go wrong.