Defense of plan sponsors in the outcome of Tibble v. Edison case comes from an unlikely source—The Huffington Post.
Robert Hiltonsmith, a senior policy analyst for the site, begins by praising the high court’s decision in favor of the plaintiffs that a duty to monitor investment options offered within a 401(k) plan is something that is ongoing.
Calling the ruling “admirable and desperately needed,” he notes that “more than half of all workers now rely on 401(k)s for retirement, yet high 401(k) fees are still costing savers dearly: an average two-earner household that saves consistently throughout their working life can lose as much as $155,000 in fees by the time they retire. All told, high fees are costing savers a whopping $25 billion a year, draining precious dollars from account balances already lagging dangerously behind the amounts needed to provide secure retirements.
However, Hiltonsmith adds that the court’s ruling heaps further fiduciary responsibility on the wrong party: rather than plan sponsors, the financial services industry should be held accountable for the performance of their investment products, not employers.
He makes a strong case for the argument that ERISA is outdated, noting it was passed in 1974, “before the 401(k) even existed, and was intended to protect participants in defined benefit pension plans, whose investment management was often done in-house.
“Now, the 401(k) plans offered by most employers (and IRAs, their individual counterpart) are more like pre-packed products or services, more similar to a health insurance plan or even a carton of milk than the defined benefit pensions of old: off-the-shelf products sold to employers and individuals.”
He therefore praises Department of Labor efforts, which just received Obama Administration backing, to update the regulations and hold financial firms accountable for the performance of retirement investments. The Department of Labor’s proposed rule requires that financial advisers who sell retirement funds to any client, whether a company or individual, put those clients’ interests before their own profits.
“This rule recognizes that the primary reason that investors end up in high fee funds or plans is because of conflicted advice from financial advisers, many of whom often receive higher commissions from placing investors in higher-fee funds. The new rule would prevent this practice, leading to lower fees and better investment options for retirement investors, saving them billions.”
See Also:
- Exclusive: John Bogle’s Take on Tibble and Fiduciary
- Tibble Decision Cited in Latest Fidelity 401(k) Lawsuit
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.
