Most agree there are problems in the 401(k) world. Certain typesof plans (mostly small ones) don’t have the clout to negotiate feesas favorable as their larger brethren. Certain types of investmentoptions (notably those involving annuities and collective trustfunds) do not disclose vital information as vigorously as theirmutual fund counterparts (mostly because the latter are required bylaw to report while the former are not). Certain types of mutualfunds charge certain fees (namely 12b-1 and revenue sharing fees),that have a directly negative impact on fund performance versusthose that don’t. Certain types of service providers (namelynon-fiduciaries) can legally place a plan into investments againstthat plan’s best interests.

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These problems are well documented and their correspondingsolutions, while controversial, possess the key attribute of beingobvious and easy to implement. There are more problems, mostlydealing with participant’s lack of participation, naïvediversification strategies and lack of long-term thinking. We areseeing plan sponsors more successfully address these problems asbehavioral finance techniques slowly (and not so slowly) seep intoplan design.

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Given this, why have Ian Ayres and Quinn Curtis – two lawprofessors and the seemingly self-proclaimed dynamic duo of 401(k)fee-dom – so botched what should have been an easy research reportthat even industry thought leaders – who are well aware of theaforementioned 401(k) problems – find it difficult to support (see“Hit,Miss or Backfire? Controversial Ayres/Curtis 401k Fee Paper ClaimsBroad-Based Fiduciary Breach,” FiduciaryNews.com,March 4, 2014).

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In his seminal book Il Principe (The Prince),Machiavelli advised would-be rulers, “In the actions of all men,and especially of princes, where there is no court to appeal to,one looks to the end. So let prince win and maintain his state: themeans will always be judged honorable, and will be praised byeveryone.” This has been popularly interpreted as “the ends justifythe means.” Could it be that Ayres and Curtis had just read thissixteenth century masterpiece immediately prior to writing theirpaper and took its classic adage to heart?

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If their end is to garner attention to several of the widelyrecognized 401(k) problems stated above, was it necessary to usesometimes questionable means? The paper fails to identify thesource of its data, goes on an irrelevant digression regardingactive vs. passive funds and exhibits an embarrassing (for two lawprofessors) lack of the DOL’s stance on the regulations regarding401(k) fees. And to what end? Convince America some 401(k) planshave fiduciary problems?

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We already know that.

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Worse, rather than being the dire crisis implied by theirreport, the fee issue, if we are to believe the trends evidenced byactual data reported in The 401k Averages Book (14thEdition), 401(k) fees having been down for some time now.

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But the fiduciary problems go far beyond fees and this is whereAyres and Curtis – two lawyers, need I remind you – could havereally added value. It would have been more helpful if Ayres andCurtis, rather than conducting a generic statistical analysis ofdubious credibility, had instead dissected specific case studies ofactual court-determined fiduciary breaches and explained to plansponsors how to avoid placing themselves in that same situation.Heaven knows their paper is replete with citations to many of therelevant cases. Why couldn’t have they merely connected the dotsfor the less legally inclined and carved out a easy-to-understandlogical path for plan sponsors to follow.

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In other words, why are they channeling Machiavelli when what weneed is Sherlock Holmes?

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Perhaps because they have an end other than “proving” we have a401(k) fee problem?

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Christopher Carosa

Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).