The wait is over.
You may recall last summer when Yale Law School professor Ian Ayres threatened to run a national smear campaign against employers who voluntarily sponsor retirement plans. NAPA responded to those threats, the professor subsequently agreed not to harass employers, and Yale distanced itself from his research paper.
Well, at long last, we have the final publication of Prof. Ayres’ paper and, not surprisingly, it is still ill-informed — and still uses now-five-year-old, incomplete plan data. And despite our attempts to edify him about his flawed methodology, the professor still comes to the same wrong conclusions about fees.
Perhaps that’s because they were the conclusions he intended to reach all along.
In his attempt to drum up outrage about high fees in 2014, Ayres bends 2009 fee data — without an analysis of the quality of services being paid for by those fees or the complexity of plan design — to ignore the fact that, since 2011, more than 75% of companies have reduced 401(k) plan expenses, according to Aon Hewitt. On Feb. 24, Mainstreet reported that plan fees continued to decline in 2013 “due to new DOL fee disclosure regulations.”
While we are pleased to see that the professor has heeded our request not to slander employers by name, we are still flabbergasted that he would assert expertise while missing major developments in the regulation of our industry in the last few years. In addition to the aforementioned rapid decline in fees, he neglects the regulations that helped bring them about. He laments the “relative absence of regulatory focus on fees.” He is “skeptical of fiduciary duties alone (his emphasis) to resolve the problems in 401(k) plans.” He refers to the DOL’s participant-level 404a-5 fee disclosure rule implemented in 2012 as “an extensive new disclosure regime” that “has been proposed (my emphasis).” Whoops!
At one point the professor even acknowledges that “putting untrained workers in charge of managing their retirement portfolios comes at a significant cost.” That, professor, is why their plans give them the option of paying for professional advice. Advisors can help minimize that “significant cost.” Workers aren’t being forced to go it alone in the 401(k) plans that their employers are voluntarily offering.
To top it all off, Ayres’ policy recommendations are not short on good old-fashioned chutzpah:
• First, he suggests an “Enhanced QDIA” (EQDIA) standard, essentially making a low-cost, passively managed QDIA — plucked from an approved list of arrangements to be determined by the DOL — a mandatory feature in all 401(k) plans. You read that right: a mandatory feature.
• Next, he wants the DOL to officially designate certain plans as “high cost” and require all such plans to offer in-service rollovers to IRAs.
• Lastly, he makes a “radical proposal” (his words): that the DOL establish a “401(k) Investment Sophistication Test” that a participant must pass in order to opt out of his new EQDIA, a test he compares to getting a driver’s license.
In his conclusion, Ayres states that his recommendations would “produce billions of dollars in participant benefits” that would be “taken from the pockets of a well-organized advisor industry.” The last sentence of the paper reveals his unyielding bias against our industry: “Any reform proposal … will therefore encounter industry resistance.” Despite our direct communication with him about the faultiness of his premise, he refuses to listen to reason. Instead he accuses advisors of self-interest at the expense of participant success and makes one last effort to insulate his research from criticism. This final statement incorrectly presupposes a sinister motive on our part, but is that a purposeful misdirection? Does it highlight Ayres’ own fear that, if he is hell-bent on a particular outcome at the expense of fairness, so must be everyone else? We shouldn’t condemn others for our own flaws.
Ray Harmon is NAPA's Government Affairs Counsel.
