Two weeks ago on these pages I penned an article titled “What are Ayres/Curtis Thinking?” After a litany of questions and at least one medieval allusion, I tantalizingly questioned whether Ayres/Curtis “have an end other than ‘proving’ we have a 401k fee problem.”

It turns out I was more correct that even I thought. How do I know? Because Quinn Curtis told me (you can read about it here in “Exclusive Interview: Quinn Curtis Reveals True Intent of the Curtis/Ayres 401k Fee Paper,” FiduciaryNews.com, March 18, 2014).

In retrospect, I should have suspected their true intent. The paper is filled with citations of so many court cases it read more like a legal brief than a typical financial research paper. It was the data analysis, though, that threw me, and, I would surmise, many others. In fact, as Curtis explains, he and Ayres didn’t really want to argue of investment theory or the definition of “high” fees. The two definitely believe the costs of at least some 401k plans remains too high, but, despite the headline grabbing nature of “high fees,” this was not their point.

And all that talk about index funds? Totally irrelevant. The problem Quinn and Curtis were addressing incriminates both index funds and active funds. In this way, they are no different than other researchers or other commentators.

I claim no ability to fully explain what the two legal scholars are trying to shed light on. It is a legal issue and, as one well-versed in finance and investing, I am no more equipped to comment on legal matters than legal scholars are to comment on finance and investing matters. Nonetheless, here goes:

Apparently, the courts have, in the past, given plan sponsors a fiduciary pass when they offered “high” cost funds as long as their plan’s menu included sufficient “low” cost funds. Thinks of this as an application of the Prudent Man Rule – a fiduciary will not be held liable for a small percentage of “risky” investments in any portfolio as long as the overall “risk” of that portfolio remains in the best interests of the beneficiary.

Now, there’s a difference between managing a portfolio for a single person and offering a menu of mutual fund options for a company full of employees. The menu is not the same as a portfolio. The “risk” of a handful of options is not spread out because employees get no value out of owning these options since, presumably, there are better alternatives with similar investment objectives available. This is precisely the point of Quinn and Ayres. Rather than allowing this to occur, the two authors believe the courts should hold plan sponsors liable for a fiduciary breach based on the specific investment options. They don’t want the courts to look at the menu as a whole.

Again, while I make no pretense to know anything about case law or court proceedings, as a legal layman, this strikes me as a common sense notion.

I just wish they could have said it more directly.

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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).