When I was a kid in the 1970\u2019s, disco was the biggest thing. By 1980, disco was dead thanks to a backlash. People didn\u2019t know it at the time, but disco died the night of July 12, 1979, thanks to the riot during a White Sox doubleheader promotion called Disco Demolition Night.<\/p>\n
When I started in the 401(k) plan business back in 1998, revenue sharing was a big thing. The idea that selecting certain mutual funds would \u201clower\u201d plan administrative expenses when those certain mutual funds \u201ckicked back\u201d a fee to the third party administration (TPA). While we don\u2019t have a Revenue Sharing Demolition Night, I believe that revenue sharing is dead.<\/p>\n
I have never been a big fan of revenue sharing and I never will because I think it\u2019s always been a shell game. Selecting certain mutual funds that pay revenue sharing is a shell game because the funds that pay them tend to be more expensive than those that don\u2019t. If plan participants are paying 50 extra basis points in mutual fund expenses just to get a 25 basis point revenue sharing fee to the TPA doesn\u2019t save the plan participant any money.<\/p>\n
In my mind, revenue sharing is dead man walking because of the amount of litigation brought against larger 401(k) plans where revenue sharing factored into the decision making of selecting plan investments. Plan sponsor have been paying the consequence of using revenue sharing as a basis for selecting plan investments. For years, I have been advocating for a revenue sharing neutral fund lineup because I believe that\u2019s the model we\u2019ve been heading anyway. \u00a0Revenue sharing is getting the reputation of asbestos except that revenue sharing never killed anyone.<\/p>\n
Thanks to the rampant litigation, I believe the mutual fund companies will decide that revenue sharing just isn\u2019t worth the litigation. Unfortunately, there won\u2019t be a promotion like Revenue Sharing Demolition Night.<\/p>\n
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