During my current trip, I have had the pleasure of experiencing Delta’s computer meltdown causing millions of travelers, including myself, to be delayed and inconvenienced. Likely caused by antiquated systems not upgraded because of costs, the airline industry has gone through what the retirement industry is now experiencing – a race to the bottom with a focus on fees. So what should employers and employees in the defined contribution (DC) be focused on?
In a blog by Ascensus’ Todd Berghuis, the focus of fees is blamed on the rash of 401k lawsuits as well as regulatory initiatives especially by the DOL, not to mention the popular press. The investment world has moved to cheaper investments with index funds greatly outpacing more expensive active funds. So it’s no wonder that plan sponsors, fueled in part by advisors promising to lower costs, have been focused on fees thinking that a cheaper plan is best.
According to Fiduciary Benchmark’s Tom Kmak, the factors affecting retirement savings include:
- Retire later
- Begin contributing sooner
- Increase investment rate-of-return
- Increase rate of deferrals
- Increase employer matching contributions
- Decrease investment fees
While ignoring fees would be a fiduciary breach, plan sponsors just need to make sure that fees are reasonable for the services provider through a documented, prudent process keeping in mind that the goal is retirement savings, not lower expenses.
So while I was stuck in Atlanta last night wondering how I was going to get the Memphis for a TPSU program and then on to Boston, I would have clearly paid more if Delta had upgraded their systems. But will I keep that in mind next time I shop for plan tickets? That depends on whether I value getting to where I want to go on time and safely over trying to get there as cheaply as possible with greater risk and discomfort.
