SURVEY SAYS: Yale Professor’s Letter

July 29, 2013 - A letter sent to about 6,000 retirement plan sponsors telling them their fees are too high is creating upset in the industry.

Though many are put off by the Yale Law professor’s tone in his letter and point to the inaccuracy of data he is using, some say the letter could lead to positive actions by plan sponsors. Last week I asked NewsDash readers what they thought.

Most (89.2%) of responding readers are plan sponsors or providers, while about 10% are advisers, and nearly 60% indicated they have actually read the letter. Twelve percent said they think it’s just more negative media for the retirement industry, while 10% said it will only confuse plan sponsors and create more work for providers and advisers who serve them. Seven percent believe it is an unfortunate, inaccurate effort causing unnecessary concern, and nearly 50% chose all three of these statements.

Five percent chose “anything that makes plan sponsors review their fees is a good thing,” 2% said it is a wake-up call for plan sponsors to do something about fees, and 5% selected both of these. Nearly 10% showed mixed feelings by selecting “all of the above.”

Nearly four-in-ten responding readers (36.6%) indicated they or their clients have received the letter, while 63.4% have not.

In verbatim comments some readers made a very good point about doing a comparison of college fees and pointing out which were the highest. Some wondered how much the professor’s study cost. Some gave the professor the benefit of the doubt about good intentions, but the majority agreed his methods were irresponsible. Editor’s Choice goes to the reader who said: “John Ruskin said, ‘The work of science is to substitute facts for appearances and demonstrations for impressions.’ Unfortunately, we are rapidly becoming a society of belief, rather than science. Junk science and mere hypothesis rules the day. True science should always be welcome, and if the professor had approached this responsibly and scientifically, rather than in alarmist fashion, it is indeed possible that value could be added to the general knowledge pool.”


I am sure he meant well but being in education he does not have a clue about the real world.

Giving him the benefit of the doubt, he is trying to facilitate a "fix" when he does not fully understand the issues. It is misguided to tell over 6,000 employers that they have a problem without putting in the work to more specifically explore the fiduciary decision making process and plan portfolios, as a whole (performance, fees, and investment characteristics (e.g., is there an income option?)). From a more cynical perspective, he probably used the letters for the publicity. What better way to draw attention to his study (even negative attention).

In a perfect world, the plan fiduciaries, advisors, and providers that have had the necessary conversations about fee disclosure and analysis in the past year would know they've fulfilled their responsibilities and would have no cause for concern about a letter from a random stranger who has only the barest minimum of information about one aspect of their plan. Those plan sponsors who received the letter and were alarmed probably needed the kick in the pants. Having said that, it's hard to generate a lot of enthusiasm for such a superficial effort. What happened to peer review?

Seems odd to be using 2009 data - undermines validity of effort. Tone of letter - I've read excerpts seems very awkward and amateurish. What credence does he have?

Current data would have made the letters relevant. Using old data diminishes the effectiveness.

Of course, it remains to be seen whether there is any "there" there. Right now all we have are insinuations - and make no mistake, the plan sponsors were targeted for some reason, and I'd bet it has as much to do with their size (and ability to fork over large consulting fees) as their fee structures. Again, not that we know this (or anything), because this guy, armed with little more than a Yale pedigree and the (apparent) misappropriation of Brightscope's name hasn't told us (or the plan sponsors with which he has corresponded) anything other than (in the paraphrased words of Senator Joe McCarthy) "I have here in my hand a list of 6,000 plan sponsors..."

In academia there is an axiom for professors "to publish or perish" and this letter with the threat of an article in widely read publications appears to fall in that category. He may try to measure the results of the threatening letters to support his inaccurate theorem. Responsible employers with a retirement plan should be taking their fiduciary responsibility seriously and reviewing fees on a regular basis.

I question the author's motives. If he was truly concerned about high fees I would think he would have taken greater care to use accurate and current information (the data is almost four years old and fees have come down significantly since then). Given his sloppy methodology, his motivation appears to be a desire to make a name for himself as a "great reformer."

Verbatim (cont.)

It is never acceptable to do wrong in an effort to do a "greater good". Using outdated information is completely wrong, cannot be justified. The goal to help Plan Sponsors do a better job of monitoring and controlling fees could still have been accomplished with a letter worded to inform and offer helpful suggestions. The added fact that this was a Law Professor is scary - no wonder our legal system is a disaster.

If I understand this correctly, he was using data from 5500s from 2009, not the most current ones. I think plan sponsors have been watching fees since that time.

From what I've read it’s a waste of time. But look at all the free publicity he gets.

How is this different from ambulance-chasing lawyers?

Another academic butting into the business world using outdated data and flawed research...viewed as a pure publicity.

John Ruskin said, "The work of science is to substitute facts for appearances and demonstrations for impressions." Unfortunately, we are rapidly becoming a society of belief, rather than science. Junk science and mere hypothesis rules the day. True science should always be welcome, and if the professor had approached this responsibly and scientifically, rather than in alarmist fashion, it is indeed possible that value could be added to the general knowledge pool. Professor Ayres should be ashamed. As a member of the academic community, he should know better. Such junk science is unacceptable. Yale should be embarrassed that this is being done under the name of such a prestigious academic institution.

What was Mr. Ayres motivation? And what does he care about the fees in the retirement plans of other companies? The only plan he should be watching is the one HE is in.

Unconstructive approach to threaten plan sponsors. Old data, incomplete picture. Looks like a media spotlight grab to me. Very poor work, surprising from a member of the Yale faculty. If we were to compare just the cost of colleges, we'd certainly never choose Yale, would we?!

Verbatim (cont.)

It struck me as a marketing scare tactic. Mostly I wonder how Yale Law School feels about this.

While plan sponsors have a fiduciary obligation to review and understand their plan's fees, to publish a report based on dated and incomplete information (2009 5500s) is irresponsible.

With defenses such as absence of malice, plausible deniability and just plain oops, sorry 1st amendment common sense and good conscience have left the building. Who was it that pined kill all the lawyers - somebody bring that guy back. (or was it liberals...)

Based on the analysis in this article it continues to show the disconnect from Academia to the real world. It is disappointing to see something like this from a highly respected school. Living in theory and research but having no grasp on how the real world operates. As the saying goes, those who cannot do, become professors!

Educating sponsors about their plan fees is one thing, stating that their plan is potentially one of the worst offenders and then threatening them with publishing the findings for the whole world to see is another. Without specifically reviewing each plan, the fees paid and to whom, and the services provided for said fees, is irresponsible at best. This industry is constantly taking hits; maybe someone should review the Yale Professors. What are students and parents getting for the "fees" they pay? Might it better serve their "clients" to study how to improve law and the practice of said? Or....ethics. On no wait...lawyers are experts on, and have, impeccable ethics. Uh-huh. That is why their "fees" are so reasonable.

We work hard to provide a good plan for the employees at the lowest cost. This is a kick in the teeth. I am glad you brought up the providing a pension is optional. If too many regulations are heaped on it, it will go the way of retiree medical care and that does not help anyone.

I have to wonder who funded the entire project, as it had to have cost a considerable amount.

This may not be his intent, but the phrasing and positioning of these letters had the ring of extortion. Looks like this guy is looking to make some money, and in the way generally reserved to those who (allegedly) have incriminating photos that you wouldn’t want your loved ones to see. And in the meantime, like Joe McCarthy, he waves this list of unnamed "violators" against a standard he has yet to articulate. It's sleazy, but it will be interesting to see just how sloppy/I'll-informed his data/conclusion actually is.


NOTE: Responses reflect the opinions of individual readers and not the stance of Asset International or its affiliates.