All law firms are eligible to participate in the American Bar Association Retirement Funds Program. This program (for defined contribution plans) allows participants to avoid paying any record keeping, administration (with the exception of minimal cross-testing fees), custodial, or investment advisory fees to the extent they use the brokerage account option offered through TD Ameritrade – and there is no limit to how much money participants can invest in the brokerage account. The reason participants can take advantage of this opportunity is that the program also offers core investment options that include percentage-based fees that are paid to Voya and Northern Trust for record keeping, custodial, administration, and investment advisory services (if plan sponsors require more advanced plan design services such as cross-testing, they still have the option of retaining their administrator and paying this provider separately). Since the vast majority of the money is invested in these core funds, the program is able to survive as both ING and Northern Trust are able to generate a sufficient amount of revenue to make up for the revenue they don’t receive from the funds that are invested in the brokerage account. TD Ameritrade also makes a payment of 8 basis points (0.08%) to the plan’s collective trust in order to lower Voya’s fee. TD Ameritrade is willing to make this payment because it typically receives more than 8 basis points worth of revenue in trading fees.
Furthermore, most (and perhaps all) of the funds that most plans have available are also available through TD Ameritrade. All mutual funds have the same expense ratio regardless of where you buy them, so participants can purchase most (or all of the same funds) at a lower price. Granted, the core fund options are part of a collective trust, so they are not available through TD Ameritrade. However, given that they are loaded with record keeping, administration, custodial, and investment advisory fees, it seems far more reasonable to purchase comparable funds in the brokerage account without these additional fees.
In addition, if you were to use the ABA Retirement Funds Program, the only way the advisor could get paid would be for the firm or company to write a check or for the advisor to come to an agreement with each individual participant. Under most plans, the advisor (along with the record keeper and custodial and possibly the administrator) gets a percentage of the of account value and gets paid regardless of the utilization of the services.
If you view the program’s website (www.abaretirement.com), you will not see any of the above information advertised. However, if you contact a representative from the program, you can confirm that this information is accurate.
So if all of what I have written is true, it would seem that all law firms and those that serve law firms that continue to pass on record keeping, custodial, administration, and advisory fees to their participants are missing out on a great opportunity, especially since in addition to the enormous cost savings, the ABA Retirement Funds Program acts as a discretionary trustee and therefore assumes a higher level of fiduciary responsibility than almost any other retirement program in the marketplace.