FCM: Student Center
Frank teaches students how to have more money; more time; and less stress.
 Current page : Home      U. S. Congress
 
 
 
NOTE:
 
Congress asked for testimony on the issue of high retirement plan costs.  
 
They wanted ideas on what can be done to cut plan costs. 
 
Everyone was required to send his or her testimony by e-mail. 
 
Frank Cirullo sent his ideas by e-mail to Congress on May 10, 2007, at 1:35 p.m.
You can read what he said in his testimony, below:
 
Here is how I see the problem: 
  1. Employers are buying retirement plans that are awful (high cost), because they are confused by the myriad of hidden and camouflaged fees that vendors charge.
  2. Many employers continue to believe that their plan is either "free" or "low cost" even after it's proved it's not! That's why they ignore all of the warnings about the high cost of retirement plans. 
  3. This problem of high costs with 401(k) plans and 403(b) plans has been going on for twenty-five years.  Employers won't fix what they don't see, right?
  4. Employees put up with their high cost plans because with the myriad of hidden and camouflaged costs they can't tell a low cost plan from a high cost one.
 
Here is what I believe the solution is: 
Do not pass a law that requires employers and workers to be advised by anybody; especially, the experts. 
 
Why?  Salespeople (consultants; investment advisers; recordkeepers; administrators) have an inherent conflict of interest—it makes no sense to ask a fox (vendor) to guard the chicken coop, right?

 

Allow our free markets to work their magic to bring down retirement plan costs, but don't pass laws that require the fox (vendors) to educate the farmers (employers) on how to keep their chickens (workers) safe.

 

It's the lousy education that is being provided by vendors that is keeping plan costs high.  Look at it this way.  Not one vendor will fire his or her company for charging more than the benchmarks for a service or investment.  Instead, he or she competes against other vendors by distracting uninformed employers with "free" bells and whistles.  Obviously, the real problem with high cost plans is poor education.  See?

 

Supply and demand can only work when the playing field is level.  Currently employers and workers are misinformed about their plan's true cost, so they actually believe it is either "free" or "low cost."

 

Did you get that?

 

Employers and workers don't know what they don't know about their retirement plan, so they ignore all of the warnings about its high cost.

 

Again, please allow the free market to work its magic to bring down retirement plan costs.  But don't pass laws that require the fox (vendors) to educate the farmers (employers) on how to keep their chickens (workers) safe.

 

Please see the logic in making the playing field level with education, but not the kind of education vendors provide.  It's the only way to allow our free markets to bring down costs.
 
Frank Cirullo, founder http://www.401kplanschool.com/ and http://www.403bplanschool.com/ School, and First Capital Management in San Diego, California.