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Thursday, January 14, 2010

The True Story of Merrill Lynch & The WalMart 401(k) Plan

I've tried to stay away from "geeky pension shop-talk" in this blog, but I was pointed to an article earlier today that I want to pass along.

Forbes Article, Merrill Lynch & Walmart

If you have any interest in your own retirement income security specifically, the contradiction in terms that is WalMart, or just how greedy some folks can be, this is an interesting read.

I'm not a lawyer, but it's pretty damn clear to me that at a minimum, WalMart's 401(k) plan fiduciaries did not adequately carry-out their responsibilities under ERISA. Taking that for granted, this goes one of two ways:
  1. The Passive Neglect & Stupidity Road - Under this scenario, WalMart's benefits people simply didn't care about the fees being charged, investment returns being earned or the impact that limited (& poor) investment choice had on plan participants. Failing to act in the best interests of plan participants is a violation of fiduciary responsibilities, but stupidity and neglect isn't exactly criminal behavior...if it was, 80% of the Pennsylvania Legislature would be in jail. Also, if this is the actual reason why things got so out of control for the WalMart 401(k) Plan, then it definitely paints a picture of a corporate culture that placed little-to-no value on the associates who work for the firm. To put this in context, I have had some administrative experience with my own employer's 401(k) plan and I can tell you definitively that all investment fees were actively scrutinized constantly to ensure that plan participants earned the maximum return possible. I've also worked with very small employers who have been exceptionally diligent in making sure that their $2 million dollar 401(k) plan had reasonable fees.
  2. The Greasy Palm Road - Under this scenario, WalMart's benefit people actually knew that plan participants were being over-charged for investments and that this over-charging was consented to along with Merrill Lynch and third-party investment providers. Why? Perhaps Merrill Lynch concocted this arrangement as a way to seemingly eliminate any direct administrative costs for WalMart. This would be shocking in a plan of this size (note that the dollar value of the plan is seemingly large, until of course you consider the number of plan participants), but it would also fit nicely into the worst view of WalMart by it's critics, where the company is a profit machine that uses employees in the same way that it uses bathroom supplies ("buy'm cheap, use'm & then throw them away").
I don't see a third scenario here. Either they knew or they didn't. If they didn't they should have. Remember, WalMart has some of the most sophisticated financial reporting systems in the business world today. These are folks who know how to account for the pennies.

The moral of the story? Pay attention to what your employer tells you about your retirement benefits. Read the stuff they give you. If you don't understand what it says, ask to have it explained to you. If you don't understand the explanation, ask again and again and again until you do. If you have access to a (trusted) financial professional, ask them to review your retirement plan information. You have nothing to lose but a lot to gain.

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