DOL credits itself for notable evolution in the 401(k) industry -- not without criticism

Well, let’s see.

ERISA was enacted in 1974, generally effective a year or so later. Section 404© [that’s supposed to be a lowercase “c” in parens] is one of the key sections governing a typical 401(k) plan’s operation. It only took the Labor Department almost 20 years to issue regulations necessary to implement that section of the law. As far as I know, even today, the DOL has remained silent on important aspects 404© compliance. A question such as, “How does the DOL see the consequences of an employer’s failure to comply with the 404© requirements?” is met with the response of something like “it will be evaluated based on fiduciary prinicples.” Nothing specific.

Moreover, about 20 years ago I (a former practicing attorney representing a service provider) attempted to engage the DOL in a discussion of some issues involving the use of 12b-1 fees to compensate the service provider and was essentially told to go away unless I could refer the
DOL to published articles on the subject – at which time there were virtually none that I could locate.

I appreciate the DOL’s current efforts, but I’d say they’re a day late and a dollar short, as the saying goes.

It is unrealistic to assume any one party is responsible for the trend in fee transparency. Instead, it was a joint effort between the plaintiff bar, the courts, congress, the DOL and the press that thrives on sensational headlines that has resulted in the improvements in fee disclosure. In particular, much credit should be given to Jerry Schlichter, the impetus for moving the needle and who financed the mission to expose industry practices that are detrimental to plan participants. Jerry’s aggressive campaign of filing over a dozen lawsuits against Wall Street darlings made the headlines, got legislative attention that resulted in pressure on the DOL to take action. In addition, we are seeing a better educated judicial system on ERISA issues resulting in more favorable decision for the plaintiffs which in turn has encouraged copycat litigation and increased interest in ERISA claims by the plaintiff bar. Now that the ball is rolling many are wondering when it will stop, I don’t have a crystal ball but with 10,000 boomers turning 65 every day, a volatile market, the increased interest in complex investments that are difficult to understand and the first year of fee disclosure behind us which many in the industry believe failed to meet the objectives but I suspect there will be continued interest in ERISA litigation and activities by the DOL to improve fee transparency.