Back at the turn of the century when Persumma was still in its start up phase -- the company is "retired now" -- there was a debate at an industry conference over revenue sharing and the relative fairness of some 401(k) participants subsidizing the costs of others. The position of Persumma's CEO was that these subsidies are essentially unfair, and that was why Persumma's taking revenue sharing down to the participant level was the right thing to do. The con argument, which may have been shared by most everyone in the audience, was that unfair was just the way the Feds want it to be; high balance participants make these plans possible for all by shouldering fees based on their account size.
While this debate has mostly disappeared from the industry, it is being picked up by the Wall Street Journal
's Fund Track column
. That may be a clue that the relative fairness of fees may be about to hit the mainstream:
If the issue of revenue sharing by mutual funds in 401(k) plans hasn't gotten your attention, consider this: It may mean you are paying far more to support your retirement plan's back-office costs than the person sitting next to you.
Reporter Ian Salisbury then goes on to warn that some investors in active funds will be paying more than those in index funds or company stock, two investment options that often charge little in the way of fees. Salisbury points to research from Callan Associates
that found that only one out of eight plans consists entirely of funds paying revenue shares and that in one-third of plans only half of the funds (or fewer) contribute revenue shares.
"The concern is it's not equitable," he quotes Callan's Lori Lucas as saying. "Some people could pay almost all of the costs. Some could pay none of the costs. What funds you select can determine whether you pay or not."
Salisbury points to a different solution than the one offered by Persumma. Rather than credit and debit revenue shares at the individual level, the author raises the solution from Hewitt Associates Pam Hess of plan sponsors switching to collective trusts or separate accounts to eliminate revenue sharing inequities. Plan sponsors can then directly pay the recordkeeping and administrative fees, charge each employee a flat fee or an flat percentage from each account.
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