Lowering 401(k) Plan Fees. The 401(k) Industry continues to grow despite the high cost of lower 401k plan fees. The 401(k) Plan as a savings structure is subject to increasing pressure from external sources. The downward pressure on fees, currently touted by some as being good for the industry, could eventually decimate the industry. The same 401(k) industry that has flourished through the 80’s 90’s and 2000’s to reach $4.7 Trillion at the end of Q2 2015. Given the success of 401(k) plans why is there so much pressure to lower 401(k) plan fees?
Pressure to the Retirement Plan Sponsor
There is organized downward pressure being applied to 401(k) plans from multiple sources. The Department of Labor has recently applied pressure in the passage of fiduciary reform. Although fiduciary reform is the buzzword; the impending pressure on fees is being applied through registered investment advisors, registered representatives and plan sponsors. There is collateral impact on Individual Retirement Accounts, Recordkeepers and search consultants as well. It appears that only ERISA Attorneys are immune.
But the pressure does not stop at the hands of the Department of Labor. The Judicial Branch of government has also been a catalyst of lowering fees. The pressure from the courts comes in the form of large settlements involving Boeing Co. via a settlement of $57 million and Lockheed Martin Corp. in a fee-related settlement payout in the amount of $62 million. It should be noted that neither Boeing nor Lockheed Martin Marietta admitted any wrongdoing in these settlements.
The Impact of Continually Lowering Fees
There comes a point where the last fee cut has been made. Once the final fee-cut has been made – the industry landscape is forever changed. At that point no more research is being produced. No more technology advancements are funded.
If we had reached the point of zero-margin based pricing in the 80s, we would all be walking paper forms into the Human Resource Departments at the end of each quarter when wanting to switch our investment mix. Not really a scenario that many can fathom.
