Retirement Industry Counters ‘Frontline’ Accusations With Data

Education is often the best antidote to negative news about 401(k) plans. With this in mind, several retirement industry spokesmen have provided statistics to defend retirement plan management practices after the recent airing of a TV documentary that may have concerned some 401(k) participants.

The U.S. retirement investment community was quick to react to the April 23 Public Broadcasting Service “Frontline” program “The Retirement Gamble,” which raised questions about how America’s financial institutions protect retirement savings. The show focused on the “bewildering and frightening challenge for millions of Americans” it says saving for retirement poses. It examined “opaque” investment fees that Frontline correspondent Martin Smith contended chip away at workers’ savings over the years to compensate well-paid money managers sometimes hired by their plan sponsors.

The Investment Company Institute responded to the program with an April 23 fact sheet that emphasized the benefits of high-volume institutional investing that most defined contribution plan participants enjoy. Based on its year-end 2012 research with the mutual fund consultancy Lipper, ICI said that because most 401(k) plan participants are offered and favor lower-cost funds, the average asset-weighted expense ratio for participants investing in equity funds was 0.63 percent that year, less than half the 1.4-percent simple average for all equity funds.

The PBS documentary, which referred to “high management fees” 401(k) participants face, said that the average actively managed mutual fund carries an annual expense of 1.3 percent of a 401(k) plan participant’s balance, with some funds charging 2 percent and some as much as 5 percent a year.

As the ICI fact sheet continued, “84 percent of 401(k) plan assets in equity mutual funds were invested in funds with expense ratios of less than 1 percent at year-end 2012.” Thirty-five percent of 401(k) assets invested in that way were in funds with expense ratios less than 0.50 percent, the industry institute said.  “In fact, fees for mutual funds in 401(k) plans have been falling — even as plans offer more and better services to participants — and the fund industry has strongly supported greater transparency for plan fees,” the institute said in another fact sheet distributed the day before the show aired.

In general, ICI and other industry advocates stressed the value that 401(k) and other types of plan sponsors and participants derive from the fees paid to manage their investments. “… all retirement savings systems — defined contribution, defined benefit pension or hybrid approaches — involve the payment of fees and expenses for the costs of necessary services,” the institute said.

The American Society of Pension Professionals & Actuaries also reacted strongly to the “Frontline” report.

The organization’s executive director and CEO, Brian Graff, said in a news release posted on the ASPPA site April 24 that the program “relied too heavily on a study [“The Retirement Savings Drain: Hidden & Excessive Costs of 401(k)s” by think tank Demos in May 2012] we debunked when it first came out about a year ago that overstated typical 401(k) plan mutual fund fees.”

To read the complete story on Thompson’s HR Compliance Expert, click here. Guidance on what to tell plan participants about fees,  can be found in the Pension Plan Fix-It Handbook at http://hrcomplianceexpert.com.