The new law requiring 401(k) plans with fewer than 100 participants to hire a trustee or have an annual audit to safeguard against fraud might be well-intended but costly to implement.
Paul Kampner, president of TMark Associates Ltd., Chicago, suggests the small market has not been lucrative enough to attract banks or mutual funds.
The Department of Labor is still drafting regulations.
The loss of an entire small 401(k) fund inspired the law. To enact ERISA in 1974, it took only the Studebaker troubles. Defined benefit funds since then might be marginally safer, but the costly burden of ERISA has led to fewer of them.
How pervasive is 401(k) fraud? The new law might bring marginally safer small 401(k)s, but it might long term be just as costly as the original ERISA in terms of companies willingness to sponsor them.
Less drastic, more voluntary measures would serve small plans better.