If a template represents an ideal meant to induce consistency and efficiency, why did the DOL leave this vital tool out of their 2012 rule?
Look at what "template" really means. We derive the word from the Latin templum, which meant “plank” or “rafter.”
The word traveled through the French templet, which translates to “horizontal piece under a girder or beam.” We can trace this particular use of the word back to the 1670s. In this sense, a template evokes the image of the ideal, in that you must look up to see it.
It wasn’t until the mid-nineteenth century that the word took on the meaning we use it for today. As early as 1819, template meant a “pattern or gauge for shaping a piece of work.”
The purpose of a template leads us right into the industrial era (which is why we had to wait until the 1800s until we see it used the way we use it today). If you want to build a better widget, first build a template.
We create templates to increase consistency. With increased consistency, we increase efficiency. With increased efficiency, we increase profits. Everyone loves increased profits. It’s what makes the capitalist world goround. And that’s a good thing.
In fact, for those of you old enough to remember, French demographer Alfred Sauvy came up with the term tiers monde (“third world”) to describe pre-industrial countries. (He was making an analogy between these countries and the “third estate” (i.e., the poor class of pre-Revolutionary France.)
Incidentally, when first used, the term “third world” stood alone. It was only after the Cold War establishment took over the phrase that we had a “first” and a “second” world. (Bonus points for those who know what those worlds represented.)
You might be thinking “what does the use of templates to lead our agrarian society into the modern age have to do with saving for retirement?” The answer came to me when I recently interviewed the authors of the 401k Averages Book (see “Exclusive Interview with David Huntley and Joseph Valletta: Plan Sponsors Need Template to Identify Fees,” FiducairyNews.com, March 21, 2017).
Since 2012, when the DOL implemented its Mutual Fund Fee Disclosure Rule for 401(k) plans, the issue of fees has become a sort of “global warming” for the retirement plan industry. What I mean by that is that the media meme for the past five years has been that the malicious nature of fees is “settled science” within the retirement industry.
News flash, in its original explanation of the Fee Disclosure Rule, even the DOL emphasized it wasn’t about “low” fees, but the value derived from those fees. Of course, to determine the exact nature of the relationship between fees and value, one needs to measure both. It’s understandable that value is hard to measure. Value means something different to everyone. It is situation dependent.
For example, a plan sponsor whose company specializes in financial literacy might not find any particular value in their retirement plan’s service provider’s education meetings. On the other hand, a company that doesn’t focus on financial literacy may very well see a value that that same educational program. Value, then, comes in many (my guess there’s more than fifty) shades of grey.
Fees, on the other hand, are black and white. Or at least that’s the way it should be. No doubt it was the primary intention of the DOL’s 2012 rule to make fees obvious, understandable, and clear. This, in turn, would lead to consistency, efficiency, and more profitable retirement plan returns. And that would be a good thing.
Except the DOL seems to have skipped the class in Capitalism 101 that taught what tool was most responsible for making any process, system, or factory more consistent, more efficient, and more profitable.
While the 2012 Fee Disclosure Rule brought us 80% of the way there, the DOL forget the one thing needed to take us that final 20% – a template. They actually tried. They proposed one.
It was overly complex and actually misled retirement savers. When the DOL came out with the Rule sans template, it promised it would soon follow up with a template. It’s been five years and we’re still waiting.
Just how critically important is a template? Ancient Romans had another meaning for templum: “consecrated place.” It’s where we get the word “temple” from. You go to these places to preserve your soul. In the same way, a 401(k) fee template can protect the soul of your retirement savings.