The New York Times Takes 401(k) Industry to Task on Edison Case
Floyd Norris, The New York Times’ chief financial correspondent, asks the obvious question why a plan sponsor would willingly (or neglectfully) choose a more expensive version of a fund — as was the case in the Tibble v. Edison case that is now before the U.S. Supreme Court.
Though the technical issue centers around the six-year statute of limitations, the case highlights a sense of betrayal and injustice. Coverage of the case by Norris underscores just how mainstream and important 401(k) plans have become.
Industry insiders understand the motivation of why Edison might have selected more expensive funds. At best, it shifted costs to participants; at worst, Edison just didn’t care enough to negotiate a better deal for participants — as the company would have if it had to pay the fees. Citing one judge who called Jerome Schlichter a “private attorney general” taking actions that the DOL should have performed, Norris says that the popularity of 401(k) plans belies critics’ claim that litigation inhibits their growth. Both the DOL and the Department of Justice advocated for the Supreme Court to reconsider the lower court’s ruling that the statute of limitations prohibited consideration of funds selected six years before the lawsuit.
So while recent DOL fee transparency rules and a more sophisticated plan sponsor and advisor market have contributed to lower — and what some might call fairer — fees, the industry’s sins of the past make some, like the Times’ Norris, skeptical of the entire industry.