Here’s that in Ary Rosenbaum’s voice — clear, direct, with a personal anecdote to drive the point home:
I’ve talked a lot about institutional share classes, revenue sharing, and the alphabet soup of fund share classes. Maybe I was getting too technical — ERISAese, if you will. So let me break it down in plain English.
No matter what it’s called — institutional, admiral, or some fancy alphabet soup designation — the plan sponsor’s job is straightforward: find the least expensive share class of a mutual fund that’s available to the plan. That’s it. Plain and simple. If they pick a higher-cost share class when a cheaper one is available, they’re just asking for trouble. Someone will come knocking, accusing them of breaching their duty of prudence. And rightly so.
It reminds me of a story about my cousin. Her father was wealthy because he owned a hat manufacturing business. We both had Apple II computers back in the day. She bought her copy of Print Shop at the local computer store for $60. I bought the same product by mail order for $32. Same software. The fact that her father overpaid was his problem — it was his money.
A plan sponsor can’t say the same thing. Overpaying with the participants’ money is a breach of fiduciary duty. When you’re a plan fiduciary, every penny counts — not for you, but for the people whose retirement you’re entrusted to protect. No excuses.
