The case of the plan sponsor who thought a $41,540 broker’s commission was a good deal for the participants who paid for it

I recently had a conversation with a plan sponsor where I pointed out that his broker took $41,540 in commissions which were deducted directly from participants’ retirement accounts in 2012 along with an additional $5,543 in commissions in 2013.  Given that there were only 61 participants with balances in his plan through 2013 which would indicate to any reasonable person that there couldn’t possibly be $41,540 worth of work to do (even if this was the year when the plan sponsor changed providers), one would think he would have thanked me for pointing out this fact.  However, he instead accused me of trying to make his broker look bad, and insisted that the arrangement was a good deal because the broker only took $5,543 in commissions in 2013.  This conversation may sound like a parody, but it is sadly true – and even more sadly this type of thinking (or more accurately lack of thinking) represents the mindset of most plan sponsors.  As I have pointed out in an earlier post, there is no value to paying any commissions at all, let alone allowing a broker to take $41,540 from participants’ accounts – for doing next to nothing – or at most maybe spending no more than 10 hours of his time in a 12 month time period.  So what can be done about this?  How can people who oversee millions of dollars of people’s retirement plan savings begin to change their thinking?  There are no easy answers, and nothing is going to change any time soon, but we can at least start by calling these people out and exposing their actions.

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