The Casino count room and the 401(k) Custodian

One of the more interesting points of the movie Casino was that Nevada Gaming Control rules forbade casino owners from being in their own count room, where all the money from gaming was collected.  It was an absurd point, but those were the rules.

With fee disclosure regulations being implemented in April 2012, plan sponsors will fully understand how much direct and indirect compensation that their plan providers received.  The indirect compensation includes revenue sharing and other sub-TA fees, as well as 12b1 fees.

What I find similar to the Casino count room situation in the retirement plan industry is the indication by many retirement plan custodians that they will not account for any of the indirect payments that a third party administrator (TPA) or financial advisor will receive.

Years ago, I had a client who swore that their TPA was pocketing revenue sharing while the TPA had promised that the revenue sharing payments were being used to offset the hard dollar administrative plan costs.  I contacted the plan custodian on the client’s behalf and the plan custodian claimed that they had no accounting for revenue sharing payments that the TPA was receiving because these payments were part of an agreement between the TPA and the various mutual funds under the plan. My training is an ERISA attorney, but common sense tells me that a plan custodian should be able to determine what a TPA receives in revenue sharing payments because the money has to come from somewhere and it has to get to the TPA some way. I assume that because there are 401(k) custodians that do account for the indirect payments that a TPA receives. Maybe I’m wrong but plan custodians who claim they do not account for revenue sharing payments are using the same Sgt. Schultz act from Hogan’s Heroes where they: “hear nothing, see nothing,  know nothing.”

Hidden fees of the 401(k0 plan business is a function of the industry that led it happen. Many plan providers went the full fee disclosure route before the Department of Labor demanded it, but the industry could only have cloaked fees if you had plan providers like custodians look the other way.