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Old 08-23-2016, 12:51 PM   #21
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These lawsuits would not have been politically feasible a few years ago.

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Old 08-23-2016, 01:43 PM   #22
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Meant to write this earlier, but cat was bothering me too much...

I saw an interview with one of the attorneys who is suing MS.... seems the crux of his complaint was that there was one (maybe more, he did not say) fund that performed worse than 87% of its peers... never mentioned anything about costs... now, they did lose his feed, so maybe he would have said more if he had stayed on longer...

Looking at some articles, they do mention high fees... so I guess that is in there...

Also, seems like everybody is piling on.... there was a link to an article of 12 lawsuits against universities filed in the last 10 days... but it was behind a paywall so I did not read it...

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Old 08-23-2016, 01:56 PM   #23
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Originally Posted by Texas Proud View Post
But you miss my point... just because they offer that fund in their 401 does not mean any employee has to buy it... why are they being sued for just making it available....
That's a good point. The company doesn't have to even offer a 401(K) at all. So, they are offering some crummy funds (that they also sell to their clients), some better funds, and they are giving employees a match. I would complain a lot if I were an employee, and the whole thing gives MS a black eye that can't be worth the money they get from selling these crummy funds to their employees, but I don't see why the courts are involved. It would be like suing because food in the company cafeteria is not tasty.
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Old 08-23-2016, 02:41 PM   #24
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Originally Posted by Texas Proud View Post
Also, seems like everybody is piling on....
It is not so much "everybody", but one law firm in particular that won a case setting a precedent before the US Supreme Court.

In addition to that, the climate is better now that the DOL has updated the fiduciary rules [I think] by executive order.

It is also helpful that John Oliver had a piece on the whole 401(k) high-fee rip-off:
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Old 08-23-2016, 05:37 PM   #25
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Originally Posted by Texas Proud View Post
I can understand someone complaining if all options are expensive like in my example of my sister... there was nothing that was cheap... but, like the plan that I set up at my old small company.... there were 60+ funds to choose from... some with high expense ratios and some with the 5 BP mentioned.... nobody was forcing any of the employees to buy the expensive fund...

The problem is some plans - like my DW's (administered by Fidelity btw) - offer a token few low e.r. funds, but they are nothing one can build a diversified portfolio around, especially if you're a bit older and looking for a middle of the road AA across the major asset classes. In her case, she would have been limited to one of Fido's active mgmt target date funds with an e.r. of around 60 bps if memory serves. Fortunately, we were able to grab two of the lower e.r. offerings and then structure my retirement plans to balance them out. Some, especially singles, might not have that option.

Originally Posted by Texas Proud View Post
I was with a firm who had a 401(k) plan with a total of 5 investment options... not great options.... but I got a huge match... I had the choice of investing or not knowing my choices were limited...

Good point. And that was probably the best part of DW's plan. Not that the match was huge, but it was enough to make us willing to work around the plan's shortcomings.
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Old 08-23-2016, 07:25 PM   #26
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Most 401K plans have third party advisors who can provide investment advice to employees if they feel like they need advice on which funds to choose, how to come up with an asset allocation plan, how much they need to put away, etc.

Where I believe these companies got in trouble was they placed actively managed funds into the plan which have 12B-1 fees. The fees were paid as commissions to cover the cost of advisory services and record keeping. They also may have some index funds in the plan, which don't have the 12B-1 fees, and therefore no commissions.

So the advisors were put in a situation where they were recommending to employees which funds to invest in, knowing that if they steer the employees to certain funds, it equates to commissions earned, while the index funds equates to no compensation. So of course there was some questionable judgment on how they came up with their recommendations.

The employers had a duty to ensure that advice being given to employees was in the employee's best interests. But because of the conflict on interest with 12B-1 fees, the advice was potentially suspect.

The new fiduciaries rules that were published in May prohibit 12B-1 fees from being used to compensate advisors and record keepers. This creates an opportunity for every employee who is unhappy with their 401K plan to raise the issue of the new fiduciary regulations to the plan trustee and encourage them to realign their funds to be consistent with the new fiduciary guidelines.

The deadline to comply with these guidelines is 1/1/18. So employers can procrastinate for a bit longer, but at some point they are going to have to fix the issues and replace the funds in their plan, or at least provide a way for the 12B-1 fees to be returned to participants rather than being used as commissions.

For anyone who is currently in a plan they are unhappy with, I would encourage you to read the new fiduciaries rules and raise a fuss in your organization until it gets fixed. I recently did this at the company I work for, and I placed myself in charge of finding a new advisor and replacing all of the funds. It took some nudging and a few unpleasant conversations with the executives, but it was worth it. Eventually, when I'm done, the employees will benefit significantly from lower fees and better fund choices.

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