It’s
probably safe to say that most who get letters from Yale University are eager
to receive them. They are likely to be prospective
college students, hoping they’re about to learn they’ve been accepted into this
prestigious Ivy League school. It’s equally
safe to say that the 6,000 or so retirement plan administrators who recently got
letters from a Yale Law School professor were not only very surprised, but were
less than eager once they learned the letters’ contents.
These
letters informed plan administrators that their plans were part of a study
being conducted by a Yale Law School professor, the focus of which was
excessive fees. Of the three letter versions
sent out by Professor Ian Ayres, one version boldly stated that the professor
had “identified your plan as a potential high-cost plan,” and that it “ranked
worse than X percent of plans.” The
letter went on to say that the professor intended to publicize the results of
the study sometime in 2014 by releasing it to such publications as the New York
Times and Wall Street Journal, and would “disseminate the results via Twitter
with a separate hashtag for your company.”
Not
surprising, the letter caused more than a little heartburn among even the most calm
and conscientious plan administrators as they attempted to digest its meaning,
including why they had received it, what they might have “done wrong” in
administering their plan, and what negative fallout might be in their future.
This
plan-level bewilderment was soon transformed into industry-wide consternation,
frustration and—justifiably—more than a little anger. Not because the industry should be immune to
scrutiny, whether from participants, regulatory agencies, the media, or even
the academic community. The displeasure
generated by Professor Ayres’ letters was due both to flawed methodology in
Professor Ayres’ study, and to its undeniably accusatory, inflammatory and intimidating tone.
As
intrusive as Professor Ayres study may seem to some, it would be wrong to
suggest that the subject of retirement plan fees is “not his business.” It is unquestionably in the public interest
that retirement plans be properly run, in order that American workers have a chance
to enjoy a financially secure retirement.
“Properly run” does include reasonable fees.” What is not in the public interest is shoddy
workmanship in the design and execution of a study whose stated purpose was to shed
light on plan fees and whether or not they were reasonable.
Among
the statistical objections to Professor Ayres’ study is the fact that the data
used is from 2009. In the world of
retirement plan fees and fee disclosure this is like road testing a
long-out-of-production Rambler against a modern computer-regulated, flex-fuel
consuming, state-of-the-art automobile. Times
have changed greatly and especially in the retirement plan industry. Fee
disclosure and awareness has resulted in many changes in the industry since
2009. Professor Ayres’ also looked at
fees in a superficial manner, not taking into account the natural economies of
scale created by larger plans having more participants, or plans with higher
average balances. Nor did the study weigh
the fees charged against the menu of services provided to a plan. Employee education, participant-tailored
investment advice, and other services that are in some contractual
arrangements—but not in others—can and do have a large impact on plan fees, many
of which are justifiable and reasonable in light of the services received.
Yale
Law School was contacted by industry representatives deeply concerned over the
flaws in Professor Ayres’ study, and the damage that could be done to
individual plans, their administrators and the plan participants, as well the
image of the retirement industry as a whole.
Unfortunately, the Law School administration gave what some might
characterize as a political response. It
stated that the letters sent by Professor Ayres did not represent the views of
either Yale University of Yale Law School, but because Yale faculty “possess
academic freedom to pursue their own research,” the institution “cannot either
endorse or repudiate [his] research.”
If
Yale cannot—or will not—openly repudiate or question Professor Ayres’ research,
perhaps somewhere between the lines of the university’s response one can hope that
that it will convey to him the message that the quality and accuracy of his
final product is likely to be scrutinized with a fine-tooth comb. Yale itself does have a reputational stake in the outcome.
It
might also be prudent for Professor Ayres to consider the fact that academic
freedom granted by an educational institution is not a license to wrongly imply
that a plan or a plan administrator is deficient in meeting its fiduciary
responsibilities. It would seem that Professor
Ayres may be the party acting “unreasonably” in this case.
