October 21, 2011
What do recent articles on retirement choices and for-profit law schools have to do with each other?
Posted by David Groshoff

The NY Times ran a piece last week that I found quite interesting.  Specifically, the Times indicated that Ameriprise Financial, supposedly the largest employer of Certified Financial Planners® in the U.S., offers its employees, shall we say, less-than-stellar options for employees’ defined contribution benefit plans (never mind that Ameriprise is using Al Gore's former college roommate as its spokesperson).

According to the Times, Ameriprise’s employees, including the entity’s CFP®’s, have a choice of expensive, underperforming funds.  Essentially on the same day, one of my colleagues made me aware of a front-web-page article at the Huffingtonpost indicating the littany of issues surrounding the parent entity of my for-profit Law $chool, (Ticker: EDMC).  What I find funny is that despite Goldman being a meaningful owner of our business enterprise, law school, we, in my personal opinion, don’t get a wonderful deal regarding fees and expenses (and choices) regarding our defined contribution plan, including any choices offered by GS themselves. 

Thankfully, 11-years’ worth of my retirement is at JPM, where we get ultra-low fees and expenses and great allocation offerings that out-do most of which I’m aware.  And even for the two tax years that I spent in academia teaching Finance at Providence College’s School of Business, those Friars sure knew how to pick fund choices and fund families, as we had a great selection of low-cost 403(b) choices that made economic sense.

What I know about fiduciary duties and ERISA fiduciary duties can be dangerous, and that’s about all I know.  As one of my former Managing Directors used to tell me (still today one of the smartest people I’ve ever met), while the law is typically intuitive, ERISA is often counter-intuitive. 

And while my ERISA knowledge is admittedly not where I’d like it to be and is evolving, one thing that I do know is mutual funds/Registered Investment Companies and how they work.  And EDMC’s choices are, at best, spectacularly mediocre and expenses are, on a relative basis to the rest of my portfolio, poor. 

To illustrate, each pay period, I have to send money into the lowest cost choice that EDMC provides (which, frankly, is NOT too difficult, as IMHO, only one exists), and then I have to divert funds from my existing low-fee/cost/expense funds to re-allocate my assets in an attempt to make up for this “holding my nose an investing in the fund that I believe will take me to hell the slowest” selection coming out of my paycheck each pay period.  Yes, yes, I anticipate the “Then don’t invest at all” comments, which ignore many details beyond the scope of a blog post that make it essential in some cases to invest in one’s defined contribution plan.

But from a business, law, and economics standpoint, what am I attempting to say here (besides another honest academicly based comment that might get my pre-tenure employment terminated)?  I’m saying that some how, some way, despite my relative ignorance of fiduciary law, and in particular ERISA fiduciary law, some harmonization ought to to occur between ERISA fiduciary duties under defined contribution plans and defined contribution plans.  No legitimate reason exists for future retirees (the economic owners of the “corporate greed” that OWS seems to be protesting) to be treated in such different manners largely (solely?) depending on the circumstances. 

JPM gave me the gold standard of plans.  I get it.  It’s JPM.  But despite being in the (soon-to-be-defunct? Big East), tiny liberal arts school Providence College gave me a great plan that has far surpassed what EDMC has given me.  Did I know about EDMC's plan prior to accepting WSU's offer?  Of course I did, and enough other tradeoffs made up for this fact.  While I use me as an example, this post isn't about me per se.  For example, when I read many of the law prof blogs, particularly now in hiring and callback season, I never seem to see any future profs talk overall compensation and benefits, only salary figures.  Being a prof can be a great career, but many candidates don't seem to focus on what often can matter most, particularly if that candidate is young, with a great deal of time for poor defined contribution choices and related high fees and expenses to compound.

And it's not just about law profs.  While I may not be pro-union, my record as a public company director has always been pro-laborer, and I attempt to shop at places that have reputations for treating labor fairly.  One item that laborers fortunate enough to find employment in our current economy often miss in today’s economy is that their benefits packages, particularly their employer-sponsored retirement account options -- if offered at all -- can have a huge effect that I find to be, at least anecdotally, often ignored to those laborers' detriments'.  If the largest employer of CFP®’s is arguably shafting its employees on their defined contribution plan choices, what does that leave the rest of employed Americans who get the benefit of having these choices?

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