Chapter 21 Why Fees?

Before we address specific issues in the regulation of 401(k) plan fees and litigation attacking current 401(k) plan fee practices, let’s consider why fees have become such a target. We would identify three key issues:

First: Unlike in DB Plans, in 401(k) Plans Fiduciary and Participant Interests Are Not Aligned

As we discussed in the Introduction to Part II, in a defined benefit plan, financial results affect the employer/plan sponsor directly (e.g., via its income statement). Thus, sponsor fiduciaries have a direct financial incentive to make prudent decisions, and the sponsor generally must make up any losses. As a result, there is (with certain exceptions) only a limited need for regulatory intervention or litigation. ...

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