(updated with correction)
The continued fee scrutiny that plan executives face permeated discussions at Pensions & Investments' West Coast Defined Contribution Conference, held in San Diego Oct. 23-25.
In a keynote address on the future of U.S. retirement policy, Michael P. Kreps, principal at Groom Law Group, spoke on the “significant uptick” in fee litigation, which he believes will persist.
“We see now a generation of lawyers or litigators who have grown up working on fee litigation,” Mr. Kreps observed. “These (lawsuits) are not going away.”
He noted that the Department of Labor's proposed Form 5500 reporting changes, which include greater fee disclosure, would arm lawyers with more information on fees charged by individual plans.
While larger plans were generally the first to be targeted, Mr. Kreps also expects fee lawsuits to move down market, noting he recently saw a lawsuit against a $9 million plan, which he did not identify. That lawsuit has since been withdrawn for reasons that are “unclear,” Mr. Kreps said.
On a panel titled “Has the focus on fees gone too far?” Philip Edwards, principal at consulting firm Curcio Webb LLC, argued the “silver lining” behind some of the fee lawsuits and fee compression is “the greater focus that has been brought to decision-making.”
“Plan sponsors need to be even more confident today than they were five or 10 years ago in terms of what they're deciding to include or not include in the plan,” Mr. Edwards said.
He urged plan executives to document their decision-making process and show that for each decision reached, multiple approaches were explored.
Speaking on the same panel, Anne F. Ackerley, managing director and head of the U.S. and Canada defined contribution group at BlackRock Inc., said plan sponsor attention should be on balancing costs and participant outcomes.
“Fees matter, they absolutely matter, but they're not the only thing that matters,” Ms. Ackerley said. “If we only focus on fees, and we drive everything into index investing, given where I think returns are going, (you) are not going to bridge the gap for our participants.”
Ms. Ackerley pointed to smart-beta investing as one way to help “bridge the gap” for participants in the predicted low-return environment. Incorporating smart beta into target-date strategies or white-label strategies can be a risk-controlled and cost-effective way to get more return, Ms. Ackerley said.
The focus on fees has not caused investment officials at MUFG Union Bank, N.A., to “back away from” offering actively managed options in the bank's retirement plan, said David Courchaine, director, total reward, speaking on the same panel as Ms. Ackerley and Mr. Edwards “In (MUFG's) core lineup there are definitely asset classes where active can add value,” Mr. Courchaine said. “It just comes down to ensuring that what we're paying is reasonable for what we're getting.”