Ouch. Here’s a story bashing Wal-Mart for having very high plan fees in its 401(k) plan, and wanting to know why in the world it doesn’t negotiate lower fees when it has some ten billion dollars in assets to use as leverage. I am sure the plaintiffs’ class action bar has the same question. A quick cross reference to BrightScope, by the way, bears out the allegation.
Here’s the original Forbes story on the issue.
In this day and age, whether to avoid bad publicity or to avoid the costs of litigation, there is no reason for plan sponsors not to put in the effort to seek below market, rather than market – or worse – fees, particularly when they have substantial plan assets to use as a cudgel. Even if a court might eventually find that the higher than necessary fees do not add up to a fiduciary breach, why incur the costs of defending against a major lawsuit alleging that plan fees were too high? It has to be cheaper, in terms of both dollars and corporate resources, to invest the time and effort to obtain lower fees on a plan’s investment options. It’s the same old same old, that I talked about here most recently – an obsession on compliance is the best way of avoiding litigation costs and potential legal exposure. From the point of view of a plan sponsor, it may not legally be necessary to drive down plan fees – the law on excessive fee issues is still developing – but an effort to do so can only be beneficial in the long run, by avoiding potential legal costs on the one hand and improving employee morale on the other.