401(k) Reform

Keeping your company's program transparent.
Magazine Contributor
2 min read

This story appears in the May 2007 issue of Entrepreneur. Subscribe »

With so many Americans depending on 401(k) programs to fund their retirements, it's no surprise that the plans are coming under scrutiny. The same charges of exorbitant fees and lack of transparency that plagued the mutual fund industry are now being leveled at 401(k) programs--only this time it's employers who are bearing the brunt of the criticism.

"Class action lawsuits have been filed against 12 companies alleging that the parties at the companies overseeing the plans were asleep at the switch," says Greg Ash, partner and chair in the employee benefits practice of Kansas City, Missouri-based Spencer Fane Britt & Browne LLP. "They are charged with not understanding or monitoring where the 401(k) money was going--who was being paid and how much--and in some cases even actively concealing information from participants."

The court cases are a long way from being decided, but they portend major changes for 401(k) plans and the employers who offer them. "We are headed for a revolution in the industry," says Ash, "both in terms of voluntary changes in the way the industry compensates itself and in regulatory requirements [demanding] greater transparency."

Large companies with more participants and greater assets under management are more vulnerable to suits, but all employers who offer 401(k) programs should take a hard look at the issues. "You need to open the black box and find out what's in it," urges Ash, who advises employers to talk to service providers about fee structures and possibly even renegotiating. "When you're asked by an employee how much and to whom [the] plan is paying fees, 'Gee, I don't know' is not going to be an acceptable answer," he says. "And more employees will be asking that question."

Jennifer Pellet is a freelance writer specializing in business and finance.

More from Entrepreneur

Get heaping discounts to books you love delivered straight to your inbox. We’ll feature a different book each week and share exclusive deals you won’t find anywhere else.
Jumpstart Your Business. Entrepreneur Insider is your all-access pass to the skills, experts, and network you need to get your business off the ground—or take it to the next level.
Entrepreneur Store scours the web for the newest software, gadgets & web services. Explore our giveaways, bundles, "Pay What You Want" deals & more.

Latest on Entrepreneur

Entrepreneur Media, Inc. values your privacy. In order to understand how people use our site generally, and to create more valuable experiences for you, we may collect data about your use of this site (both directly and through our partners). By continuing to use this site, you are agreeing to the use of that data. For more information on our data policies, please visit our Privacy Policy.