This is the second in a series of posts about the problem of excess fees charged to defined contribution retirement plans.
Retirement regulations have largely been successful in giving worker/participant defined contribution plans the opportunity to diversify. Most plans nowadays give participants a sufficient variety of investment options that it is possible to allocate investments so as to diversify away most idiosyncratic risks.
However, the 1974 Employment Retirement Income Security Act’s (ERISA) emphasis on diversification has diverted attention from the problem of excess costs. Courts evaluating whether plan fiduciaries have acted prudently have tended to just ask whether the plan offered a sufficient number of reasonably-priced investment opportunities. For example, in Hecker vs. Deer & Co. (7th Cir. 2009), the 7th Circuit found it was “untenable to suggest that all of the more than 2500 publicly available investment options had excessive expense ratios.”