Here’s how the great Bill Geist once introduced a segment on “CBS Sunday Morning:” “While police and social welfare agencies stood idly by, my parents raised me to be a Cubs Fan.” And so it goes—while the vast majority of brokers, insurance agents, and so-called experts stand more than idly by, plan sponsors face a potential Armageddon of legal challenges for 401(k) mismanagement and failure to monitor.
The financial media’s focus is on the suspension and delay of the Department of Labor’s fiduciary rule, but tort lawyers are going full out on class action claims against plans that have (one way or another) allowed high fee investment options to remain on their platforms while the plan would qualify for lower-cost alternatives. In so many cases, plans now qualify for lower-fee share classes from the exact same provider.
As is almost always the case with situations like these, plan sponsors don’t know—or haven’t asked—and the plan’s broker doesn’t tell.
In my opinion, both are guilty of failing their primary responsibility as plan stewards, “To act solely in the best interest of the plan participants and their beneficiaries.”
In some cases, the fee gap between A-shares and (institutional) I-shares, when coupled with 12b-1 fees, is as much as 1.5 percent, which significantly impacts a final value in plans intended for multi-decade investing.
I’m continually amazed by plan sponsor inertia in the face of potentially devastating legal action when the cure is so easy to access.
Think tort attorneys are standing idly by? Think again.
Dan McConlogue, AIF, PPC, is director of corporate retirement plans with Ritholtz Wealth Management
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
