The Threat of Managed Accounts for Plan Advisors

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The growing use of managed accounts within 401(k) plans is threatening the financial security of plan participants and the integrity of those advisors who recommend them.

The fees charged to 401(k) plans are negative investment returns. Consider the long-term impact they have on your client’s retirement. Simply put, the fees that 401(k) participants incur will reduce their balance available and income it can produce in retirement years.

For the people who oversee 401(k) plans on behalf of their employees (often referred to as plan committees or fiduciary committees), fees are a big responsibility. They decide which services are provided to the plan and its participants, and with each service added will need to evaluate potential vendors and expenses. Their decisions have major consequences for the plan’s participants, as any fee paid by the plan is ultimately borne by the participants.

Keeping those costs low is a vital aspect of a good plan.

The Employee Retirement Income Security Act (ERISA) provides general guidance to the fiduciary committee in its Section 408(b)(2), stating that to avoid running afoul of the statute’s prohibited transaction provisions, the fiduciaries should furnish services that are necessary to the operation of the plan, while paying no more than reasonable compensation to the provider of those services.

In light of the large consequence of 401(k) fees and the fiduciary committee’s legal responsibility to them, class action lawsuits have been rising dramatically in the last 10 years. Participant lawsuits alleging fiduciary wrongdoing are now commonplace.

However, a recent case alleging excess fees grabbed my attention because it is the first that mentions so-called “managed accounts” in 401(k) plans. Rebecca Moore, managing editor for the digital division of, reported that a participant in Nestle’s 401(k) savings plan had filed the proposed class action lawsuit, alleging that the company and its board of directors breached their fiduciary duties under ERISA.