The Professor and the Lawyers: Outing 401(k) Fee Mysticism



Yale economist and law professor Ian Ayers grabbed national attention this summer when he sent letters to 6,000 401(k) sponsors, telling them they could be paying too much in fees.  The letters were bashed hard by the industry as fear mongering since many companies that sponsor retirement plans have no idea whether they are paying too much. Critics pointed out that the odds are any individual company wasn’t overpaying because the majority of plans do not over-charge, especially since the Department of Labor has cracked down on rampant overcharging in recent years.  In addition, the data was old (2009), and the federal filings Ayers used were not reliable because good info on these things is not given to our government. In other words, Ayers was trying to know the unknowable.

Question: ‘Are my retirement plan fees too high?’ Industry answer: ‘Eeeh, too hard to say. You should probably check on that.’

The letters went on to say that Ayers and research partner Quinn Curtis (University of Virginia) would publish the full results, with names, this spring. This is an example of  a “fear game,” because businesses whose retirement plans are the most fee-laden have a vested interest in not having that information shared publicly — on twitter, no less. In response, powerhouse law firm Drinker Biddle sent out an open letter discrediting the Ayers and Curtis study, based on an early draft of the findings. This raises the question: On what basis could a law firm publicly bash the results of an M.I.T.-educated economist, even before the results are published? Perhaps more interesting: Why would a law firm be interested in discrediting the findings of an academic researcher?

Ayers’ mailings, whether an experiment in poking the hornets’ nest, publicity grabbing or an earnest attempt to get lower fees for people, touches on a recurring theme in the technology-driven economy: Gatekeepers beware. Asymmetry of information, a critical factor in all rip-offs, is under siege in this time of massive processing power and networks able to do the bidding of curious individuals like Ayers. Want to rank thousands of 401(k) plan fees? No problem. Here is your spreadsheet. Want to name-names publicly on absolutely anything at all? Tweet me.

Names will be named, increasingly, and gatekeepers who have repeatedly mystified us with all the unknowables about how much we are paying for our retirement investments or our health care or even our cars are hopefully going to be exposed. Comparison shopping is one of the things that the Internet was made to do, and in some ways Ayers and Curtis are extending its reach and empowering consumers, regardless of their motives. (Note: Ayer’s got famous among the law professor set for writing about gender and race discrimination in the car-buying process.)

Here is a copy of one of the letters.

You can see Ayers page at Yale here.

This is the Drinker Biddle open letter: View pdf.

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