Schadenfreude on 401(k) Plans

Ian Ayres, a professor at Yale, has been reviewing 401(k) programs, and will publicize the really sucky plans that charge excessive fees:

A Yale Law School professor is causing a ruckus among U.S. corporations with plans to publicize a study of employers' 401(k) plan costs.

The professor, Ian Ayres, has sent about 6,000 letters to companies, saying he would disseminate the results of his study using Twitter, with separate hashtags for each company.

Prof. Ayres has mailed out several different versions of the letter since June, and at least one said that he had identified an employer's 401(k) specifically "as a potential high-cost plan." He said that he and his research partner planned to publicize the results in spring 2014.

Tri-City Electrical Contractors Inc., in Altamonte Springs, Fla., received one such letter on July 5. It said that the company's plan ranked worse than 77% of plans of comparable size based on total plan cost.

"As a reminder, fiduciary duties are the most stringent imposed by the law, and require administrators to act solely in the interests of plan participants," continued the letter, which was reviewed by The Wall Street Journal.

The letters come as administrators of 401(k) plans have been under fire for what some workers and retirees say are excessive fees. Federal fee-disclosure rules went into effect last year requiring 401(k) administrators to better spell out the fees being charged to plan sponsors and participants.

The problem is that there are a lot of 401(k) administrators who over-promise returns to justify inflated fees.

Call me old fashioned, but I think that there should be (low) statutory limits on 401(k) and IRA because otherwise, the tax breaks are simply going straight into Wall Street's pockets (expense ratio is largely unrelated to plan returns).

If you want to blow your money on a mutual fund manager who charges high fees, it's your business, until Uncle Sam starts supplying tax benefits, at which point, it becomes a matter for the public to discuss.