Dec 12

Year of the Fiduciary … A December to Remember

Remember St. Nicholas day as a child? You would put your shoes out before going to sleep and in the morning they would be filled with a surprise. On St. Nicholas day 2011, plan sponsors awoke to their own surprise. Unfortunately, not the kind they like. Wal-Mart and Merrill Lynch on December 6th without admitting or denying guilt, agreed to settle a 401(k) plan lawsuit for almost $14 million. The suit was brought by a plan participant and now opens the door, we believe, to litigation against plan sponsors, investment committee’s and providers.

Wal-Mart and the Retirement Plan Committee were sued for not fulfilling their fiduciary responsibilities under ERISA. According to the complaint, the Retirement Plan Committee failed to inform employees about the impact that the allegedly excessive fees would have on their savings, why particular investment options were chosen when less expensive options were available.

If Wal-Mart’s plan with almost $10 billion in assets was paying excessive fees, what are the net fees your plan is paying? Remember, pleading ignorance is not a defense as a plan fiduciary. You are obligated to act prudently when selecting service providers and investment options for your plan and its participants. You must also ensure that no more than reasonable compensation is paid for services taking into account “all” of the compensation, including any revenue-sharing from third parties that will be received by all service providers.

Now you can see why Wal-Mart settled.

The lawsuit also centered on Merrill Lynch using a retail share class of mutual funds which habitually carry higher fees than institutional class shares, conjointly receiving revenue sharing and other unspecified payments without providing any additional services.

Do you know what share class of funds your plan uses?

Furthermore, Merrill Lynch recommended 10 mutual funds, 7 of which collected more than $26 million in 12b-1 fees over the 6 years the lawsuit covered. Every one of the 10 mutual funds included a revenue sharing charge. The district judge overseeing the case noted that there were comparable fund options that did not charge 12b-1 fees.

Do you know if your plan charges 12b-1 fees? Is there any revenue sharing in your plan?

As full fee transparency becomes reality within the retirement plan arena, give yourself a St. Nicholas day surprise and email LCM Capital Management at for your free retirement plan analysis.

You deserve to wake up feeling like a child on St. Nicholas Day!

Source: LCM Capital Management, our Retirement Plan and Wealth Management Advisors.

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