Three years ago, I left my job as an attorney for a TPA that was also an RIA because I thought fee disclosure was the future and the way we practiced business was part of the past. I knew that the times of excessive fees, improper share classes for larger plans, and hiding revenue sharing were going to end and three years later, I was right. I only wish I could have predicted the housing market implosion, credit crunch, and recession so I could have made a few bucks by shorting the market. Plus I could have invented Twitter if I foresaw the magnitude of tweets.
I saw the Blue Comet of the future of the 401(k) business and I decided to jump off the track to avoid being hit and hitched a ride.
A few months back, I was talking about the Edison case in California where in Federal court, 401(k) participants won a huge case when the judge made a ruling that without any malice on their part, Edison violated the ERISA prudence rule because it never sought to purchase institutional share classes when they were available for a plan of that size. I thought that case was going to be the future of litigation and just another headache for Plan sponsors to worry about.
Of course, the case has far reaching results. Apparently the Department of Labor read the decision and is currently arguing that the Unisys case in Pennsylvania that was thrown out should be reinstated because of the Edison argument. See here. Apparently, Unisys was using retail shares in their Fidelity plan when retail class shares when less expensive, institutional classes were available. Slowly, but surely, the Edison case will increase the size of its effect as the decision will spread to Federal courts around the country.
Which reminds me of my old home, currently under Department of Labor investigation for many of the problems I was leery of. Their biggest client was a plan close to $75 million on the Fidelity platform. A review of their funds indicate some expensive share classes when the Plan was moved from Fidelity’s 279 platform to the Fidelity 251 platform. Perhaps, the Edison case will be a wakeup call for them. Otherwise, the Blue Comet may hit them.