Thursday, January 28, 2010
Wal-Mart Pays Retail
"How strange, then, that in a world of 8,000 mutual funds, for the 1.2 million participants of what is the world's most populous 401(k) plan, Wal-Mart assembled a measly selection of ten funds--most of them at everyday high retail prices. ... Among the eight actively managed offerings, fees were discounted nary a penny from what a lone individual with no buying power would pay. It was as if the greatest retailer in history had consigned its employees to shop for retirement services in a Soviet department store. ... Unfortunately for tens of millions of workers, 401(k) plans are riddled with skimpy fund selections, poor cost disclosure and fees that fail to take advantage of bulk buying power. ...Jeremy Braden, a Wal-Mart store employee in Ozark, Mo., alleges in a class action filed in March 2008 that by failing to demand institutional rates for the 401(k) funds, or to disclose details of the revenue-sharing deals between Merrill and eight outside firms with funds on the plan's menu, Wal-Mart breached its fiduciary duty under the Employee Retirement Income Security Act. ... 'Merrill Lynch [ML], with Wal-Mart's blessing, was choosing mutual funds based on payments that the funds would make to [ML],' says Braden attorney Derek Loeser of Keller Rohrback in Seattle, Wash. ... Because the case involved the giant retailer and controversial practices common across defined contribution palns, a ruling that requires Wal-Mart and [ML] to reveal more about the motives that went into assembling the fund menu, and how it was priced, could prove a watershed for the $2.3 trillion (assets) 401(k) business. ... The crux of Braden's case is the question of whether it is sufficient for Wal-Mart and Merrill to tell participants what they are paying in total for investment services, or whether they have the right to know how--and why--money is passed around behind the scenes. ... Such arrangements raise a multimillion-dollar question: ... Or did [the administrator] stuff the 401(k) with the funds of managers who were willing to kick back the largest fees, as Braden contends? ... Wal-Mart has never explained how its 401(k)'s funds were picked. In fact, it signed a nondisclosure agreement with [ML], preventing it from revealing details about revenue-sharing deals", Stephanie Fitch at Forbes, 18 January 2010, link:
It seems ML is an aider and abettor and should be sued too. Where were the SEC and Labor Department while this went on? No administrator like ML should be permitted to have a secret arrangement hidden from 401(k) plan participants. Period. Kick backs on Wall Street? Never. How can you think such a thing?