We have recently learned that a Yale Law School professor has sent a letter to thousands of 401(k) plan sponsors. The professor is doing a “study” on the financial impact of plan fees and has identified the employers receiving the letter as sponsoring a “potential high-cost plan.” According to the letter, this determination is based on Form 5500 data compiled by BrightScope and the rankings they assign to 401(k) plans.
The letter says the findings of the study are expected to be published in Spring 2014, including distributing the findings to news media and through social media, with the corporate names of identified plan sponsors highlighted. The letter “reminds” the plan sponsors that “fiduciary duties are the most stringent imposed by the law, and require administrators to act solely in the interest of the plan participants.”
To view a redacted copy of one letter, click here.
The tone of these letters, frankly, is shocking. Here we have employers offering retirement benefits to their workers (which is entirely voluntary, by the way) and this Yale Law School professor is essentially threatening them. And the threat is based on some study that is based on inherently flawed data:
• The data is old — 2009 Form 5500 data — and insufficient to make any meaningful relative comparisons.
• The data is incomplete since it ignores fees paid directly by the plan sponsors, thus not allowing for a complete assessment of the reasonableness of aggregate fees.
• The data does not take into account the relative complexity of the plan design.
• The data does not factor in levels of service or relative performance, including whether a professional plan advisor is helping the plan sponsor and participants.
Even the Government Accountability Office, in a recent study, recognized the inherent limitations of the Form 5500 data on the ability to comprehensively assess plan fees. As such, we reached out to the professor last week in an attempt to explain the significant flaws in the data to him. He declined our invitation, indicating that his heavy workload precluded a phone call.
As several NAPA members have pointed out, evaluating plans without complete information is like evaluating Yale while ignoring the quality of education that students receive, then saying that Yale is a high cost university since it ranks in the top 5% of schools in terms of tuition cost. Quality of product, like quality of education, is a critical part of the equation.
With all the challenges facing American workers today as they prepare for retirement, the last thing we need is unreasonable threats being made against the sponsors of the very plans these workers rely on. If you share these concerns and have plan sponsors that have received this letter, please contact Ray Harmon, Government Affairs Counsel, at firstname.lastname@example.org. We’re currently evaluating what options may be available, and we’d like to include your input.
Brian Graff is the CEO/Executive Director of ASPPA and NAPA.