Hidden Fees in Qualified Retirement Plans – Problem and Solution

Matthew D. Hutcheson (MS, CPC, AIFA®, CRC®, Independent Pension Fiduciary) has recently published his article entitled Uncovering and Understanding Hidden Fees in Qualified Retirement Plans, 15 Elder L.J. 323 (2007).

Here is an excerpt from the conclusion to his article:

Participant directed accounts, their management, and the associated errant industry culture are the sources of the current fee problem. To eliminate hidden fees, the nonfiduciary participant-directed IRA suitability culture must be rooted out of all ERISA-governed plans. Failure to treat all plans subject to Internal Revenue Code (IRC) § 401(a), and hence subject to ERISA’s fiduciary standard, the same has now placed some 401(k) service providers and fiduciaries at risk. They find themselves in the crosshairs of highly effective litigators, the SEC, the DOL, and state Attorneys General for violations of the exclusive benefit and other fiduciary rules. Most fiduciaries have not discovered that the fee problem begins deep inside the operational structure of the industry, and until this fact is universally internalized, the problem will remain within 401(k) plans. The 401(k) industry itself is now being viewed with suspicion and has taken a serious credibility and public image hit.***

It has taken serious litigation initiatives to bring this topic into the homes of the people it affects. Regular folks get it now, and vendors should consider the consequences of an indignant public. It is likely litigation will continue as long as the 401(k) industry insists on defending an inappropriate economic and philosophical model. It is advisable for the industry to settle these lawsuits, and seek direct guidance from an independent steering committee to fix the system and restore trust with the investing public.***