What Would Alexander Hamilton Say About Excessive Fees in 401(k) Plans?

Oceans rise, empires fall . . . This line from the musical Hamilton has been ringing in my ears for a few days now, since I saw the show on Broadway last week. There is just something about that particular line and the music beneath it that has kept it on constant repeat in my head as I have returned to work.

As it turns out, though, that line is a perfect fit for the topics discussed by Chris Carosa of Fiduciary News in this great article on the increased attention being paid by fiduciaries to the risks posed by excessive fees in 401(k) plans. As Chris explains, with the help of a very astute group of observers who are quoted in the article, the perfect storm of years of excessive fee class actions, the Supreme Court deciding Tibble, media coverage of large settlements of excessive fee claims, and mandated fee disclosure by regulatory fiat, have combined to make plan fiduciaries highly focused on the costs of their plans.

And so what does all this have to do with Hamilton, and the line “Oceans rise, empires fall?” You know those vast empires of wealth that have been built across the retirement industry by taking large fees out of 401(k) plans? That empire’s fallen. Making a lot of money out of servicing 401(k) assets is now going to have to come from doing a better job, not from charging more for the same job. There’s just too much risk in it for plan fiduciaries if they allow people to keep making a lot of money simply by charging a lot of fees to place or hold retirement assets, without providing additional benefit that warrants additional fees.

Although the real point of this post today is to, one, have some fun with the lyrics of Hamilton and, two, pass along an article that you should definitely read if you are interested in the question of fees in 401(k) plans, I also wanted to mention a broader point. If you have been a long time reader of this blog, you have actually seen this issue building up in exactly the way that Chris presents it in his article. Blog posts I have written, articles discussed in this blog and judicial decisions analyzed in this blog have covered this issue from its early days and, if you were to sit down and read them all now, reflect exactly the development that Chris discusses in the article: namely, the slow but eventually dramatic transition of the issue from an outlier about which no one – including often the courts – gave much thought, to a central aspect of ERISA jurisprudence and practice. You can actually see this illustrated in shorthand in just two posts, just by noting how the issue went, over the course of only a few years, from an issue that, as I discussed in this article back in 2011, was roundly rejected by the courts to one that, only four years later, the Supreme Court was discussing in Tibble.

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