Yale Professor Subtly Threatens High-Cost 401(k) Plans

Speaking of how to deal with bad 401(k) plans… Yale Professor Ian Ayres decided to write letters to thousands of 401(k) plan sponsors that have high costs and fees according to data from website Brightscope. I’m totally paraphrasing and adding humor (although I already found it amusing), but Ayres basically wrote:


I’m a Yale Law prof. Your 401(k) plan ranks among the most expensive. I’m writing a paper about how expensive plans suck money from employees. You do know that you have are required by law to act solely in the interest of participants, right? Oh, by the way, I’m going public with your company name in Spring 2014. You might want to make some changes to your plan before then.

Have a nice day!”

You can read a PDF scan of one of the letters here. Here is a draft of his paper titled “Measuring Fiduciary and Investor Losses in 401(k) Plans”.

High-cost plan providers have already been pummeled with the PBS Frontline TV episode The Retirement Gamble which brought attention to how significantly a bad 401(k) can reduce your eventual nest egg amount.

As you might imagine, the recipients and their plan providers are quite pissed at the possibility of a government audit, lawsuits, and/or more bad publicity. They counter with arguments like (1) the 2009 plan data is old and (2) high-cost may just mean high-quality.

I’m sure some of the notified sponsors may have improved since 2009. Low fees aren’t the only important factor that makes a good plan. But in general, I think it’s up to the plan sponsor to convince their participants that any additional costs are worth it because in most cases they probably aren’t. If the employees don’t want it, then you should switch to low-cost.

More: WSJ (paywall), Morningstar.


  1. I recently heard Professor Ayres speak on Big Data at a government conference. He was highly entertaining and enlightening. I enjoyed his talk so much that I bought his book Super Crunchers which I throughly enjoyed. Lots of good stories about entertaining topics…think Moneyball. I recommend it highly.

  2. Haha, I read the actual letter you had linked and it was fantastic. I think a big reason for alot of the poor plans out there is simply because the folks involved with setting up 401K’s/403b’s at their respective companies don’t really understand finance and fall victim to the investment firms with the best salesman. These letters will certainly result in needed changes that will benefit a lot of employees out there. Prof Ayres should get a medal

  3. I’m having a really hard time finding out what fee %’s actually are at the nine choices my company has. I’m sure its buried deep in some 5 point font 50 pages document I’ll never find. Any suggestions?

  4. That is awesome. I liked the letter and I think that is how he should have done it. There are so many 401k plans that are just terrible. The fees are outrageous, so employees must think about putting their money elsewhere.

  5. I put my money in Index Funds. Performance is good, and the fees are very low. Another thing I learned is that these expense ratios depend upon the size of your company. The bigger the company (headcount), the lower is the expense ratio.

  6. SanDance says:

    jo jo – just plug in the NAV (ticker symbol) of your investment choice into Yahoo Finance or any other financial site, then look at Expense Ratio on the Fund Profile page. That’s how I do it. Here is one of my options:

  7. jo jo – what SanDance said. But, if you happen to have some commingled funds without tickers: (1) download the PDF materials for each fund that should be on your plan’s website, (2) open in Acrobat Reader, and (3) Control-F and search for “Expense”

  8. @jo jo – You can use the BrightScope.com website to look up your 401(k) and get a fee report based on what investments you have


  9. Bill, CFP says:

    A few ERISA lawyers have published an open letter to the 401k community that has debunked the findings of Yale Law School professor Ian Ayres.

    Two links:


    From the InvestmentNews article:

    “Based on our work for plan sponsors, as well as record keepers and other service providers, our conclusion is that plan sponsors should not rely on his letters and study,” the attorneys wrote. “Instead, they should engage in a prudent process to evaluate the services to their plans and participants, the compensation of service providers and the costs of those services, as well as the costs of the plans’ investments.”

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