must disclose. Once you’ve disclosed,
the next logical part of the chain is to
ask if those disclosed fees are reason
able. The only way to answer that
question is to see the value side of the
equation. A 1985 Yugo does not give
you the same ride as a 2009 Lexus,
and they’re priced differently. Every
other industry has differences in value
levels, and so does our industry, so
it’s a very natural, logical value chain
in my opinion.
PA: Let’s talk a little bit about the
60 Minutes show and this piece
about 401(k) fees. Earlier this year,
60 Minutes ran a piece about 401(k)
fees and that, as well as coverage
of that issue in the mainstream
press, have garnered quite a bit of
attention. How is this affecting the
dynamic in the 401(k) industry?
Kmak: It made me think of an inter
esting play on words: People can’t
see the forest for the fees. Indeed,
fees are important, but there are many
other things that are just as important
if not more important. For example,
the only way to really help solve the
problem that we’re having in the retire
ment industry is to focus on one partic
ipant at a time. Are they participating?
Are they investing properly? Do they
roll over their retirement balances?
Do they even have a retirement goal?
What I found so amazing about the 60
Minutes piece is that, while it indeed
raised the level of awareness on the fee
side, they completely missed several
topics that are more important and just
as newsworthy.
Reish: To me, it says that 401(k)
plans are maturing. Their use is wide
spread. They’re commonly accepted
as the retirement plan of choice for
employees and employers. As with any
area that’s maturing, you gain a greater
understanding of the issues and, as
employers have more experience,
as the government has observed the
situation more, I believe that the level
of expectations is rising. Shows like
this may do it in a negative way but,
nonetheless, they help that process
of increasing expectations, both on
employers and employees.
PA: What does the Department of
Labor have to say about benchmarking retirement plans?
Reish: Basically, the DoL has said, in
a number of places, including Advi
sory Opinions 9715 and 97 16, that
plan committees and fiduciaries have
to make informed decisions, with
emphasis on the word informed. In
other words, they have to educate
them on the issues before them. They
have to gather the information that
they know is relevant for making an
informed and reasonable decision.
Taking that even a step further, bulle
tins in 2007 say that fiduciaries have to
engage in a process that’s designed to
elicit information necessary to assess
the provider’s qualifications, quality of
services, and reasonableness of fees,
and the DoL gives, as an example,
that the plan sponsor could go out in
the marketplace and conduct an RFP.
Depending on the issue, I would think
that you would be monitoring some
where between at least every year or
every third year, and most plan spon
sors aren’t going to want to go out on
an RFP that frequently. In fact, no plan
“; People;can’t;see;
the;forest;for;the;
fees.;Indeed,;fees;
are;important,;
but;there;are;
many;other;things;
that;are;just;as;
important;if;not;
more;important.”
—Kmak
sponsor would reasonably want to go
out on an RFP that frequently, both
because of the cost and the effort.
PA: Does benchmarking replace
an RFP, or is this something that
you’re doing in conjunction with
or in addition to an RFP?
Delaney: Long term, I think it replaces
RFPs. My view about the RFP world
right now is that, because we don’t
have a benchmarking system, we
have to RFP. Right now, because we
saw such a downturn in the market,
we don’t know who is going to get left
standing. Who has capital and a long
term commitment to this business? I
don’t think you really know the answer
to that question until usually 18 months
after a bear market. So, right now, I
am deferring RFPs and, instead, I am
negotiating hard on fees. Of course, if
a client has substantial changes on a
