Yale Professor

By Hal M. Bundrick

NEW YORK ( MainStreet)--A Yale Law School professor is sending shockwaves through the 401(k) industry. Professor Ian Ayres has reportedly sent thousands of letters to 401(k) plan sponsors saying that he has identified them as sponsoring a "potential high-cost plan" -- and intends to publicize his findings next year. The letter further "reminds" the plan sponsors that "fiduciary duties are the most stringent imposed by the law, and require administrators to act solely in the interest of the plan participants."

Brian Graff, CEO/Executive Director of the National Association of Plan Advisors, an organization affiliated with the American Society of Pension Professionals & Actuaries (ASPPA), issued a reaction to the mass mailing in a statement on the NAPA website.

"The tone of these letters, frankly, is shocking," Graff writes. "Here we have employers offering retirement benefits to their workers (which is entirely voluntary, by the way) and this Yale Law School professor is essentially threatening them. And the threat is based on some study that is based on inherently flawed data."

Professor Ayres' letter says that the fee assessments are based on Form 5500 data compiled by BrightScope. Graff says that data is old, having been compiled in 2009, and incomplete "since it ignores fees paid directly by the plan sponsors, thus not allowing for a complete assessment of the reasonableness of aggregate fees."

Graff also says the data "does not take into account the relative complexity of the plan design and does not factor in levels of service or relative performance, including whether a professional plan advisor is helping the plan sponsor and participants."

Professor Ayres states in the letter that the findings of the study are expected to be published in spring 2014, and will include the corporate names of plan sponsors identified as responsible for the potential "high-cost" plans.

"As several NAPA members have pointed out, evaluating plans without complete information is like evaluating Yale while ignoring the quality of education that students receive, then saying that Yale is a high cost university since it ranks in the top 5% of schools in terms of tuition cost. Quality of product, like quality of education, is a critical part of the equation," Graff writes.

"With all the challenges facing American workers today as they prepare for retirement, the last thing we need is unreasonable threats being made against the sponsors of the very plans these workers rely on," he concludes.

A redacted copy of one of Professor Ayres' letter can be seen here.

--Written by Hal M. Bundrick

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