I have nothing more to offer than simple facts, plain arguments, and common sense”– Thomas Paine

The mission of the “The CommonSense 401(k) Project” is to break down the walls of misinformation and mismanagement that create unnecessary risk and underperformance for both pension plan participants and plan sponsors. The dramatic increase in both 401(k) and 403(b) litigation, and the resulting judgments and settlements in favor of plan participants, indicate both the current problems within and the need for change in the quality of America’s pension plans.

While there are various issues involved in the ongoing ERISA debate, one consistent theme involves the quality of investment options provided within current pension plans. While the 401(k) and 403(b) industries discuss topics such as “retirement readiness” and “financial wellness,” the evidence strongly suggests that the majority of investment options offered with such plans do not actually promote such goals, as their primary characteristics are excessive costs and consistent underperformance relative to other readily available investment options.

One troubling issue is the number of studies that have concluded that the primary investment option within most American 401(k) and 403(b) plans, actively managed mutual funds, are not cost-efficient, as they fail to even cover their own costs.

  • 99% of actively managed funds do not beat their index fund alternatives over the long-term net of fees.
  • Increasing numbers of clients will realize that in toe-to-toe competition versus near–equal competitors, most active managers will not and cannot recover the costs and fees they charge.
  • [T]here is strong evidence that the vast majority of active managers are unable to produce excess returns that cover their costs.
  • [T]he investment costs of expense ratios, transaction costs and load fees all have a direct, negative impact on performance….[The study’s findings] suggest that mutual funds, on average, do not recoup their investment costs through higher returns.

Recent court decisions, most notably the United States Supreme Court’s decision in Hughes v. Northwestern University and the First Circuit Court of Appeals’ decision in Brotherston v. Putnam Investments, LLC, hopefully signal a trend to better protect pension plan participants and the rights and guarantees promised to them by the Employees’ Retirement Income and Security Act (ERISA).

The three principals involved in “The CommonSense 401(k) Project,” – James W. Watkins, III, Rick Ferri, and Chris Tobe – have created this web site for the purpose of (1) promoting discussions on the the issues involved and educating plan participants and plan sponsors on such issues, and (2) their availability to help design and create sound and simple solutions to the challenges pension plans face, the ultimate goal being to create a “win-win” situation, one which helps plan participants effectively work toward the goals of “retirement readiness” and “financial well-being, while at the same helping plan sponsors avoid unnecessary and unwanted fiduciary liability exposure.

The principals provide compliance consulting services only, what we refer to as “401(k) 2nd Opinions.” with regard to potential “quality” issues we feel should be reviewed and addressed by a plan. None of the principals provide fiduciary services to plans, as each plan already has plan advisers and other entities providing such services.

As many are currently re-examining Thomas Paine’s “Common Sense” in the wake of the current political issues in America, it can argued that some of the principles Paine discussed are equally applicable to the current ERISA issues.

PERHAPS the sentiments contained in the following pages, are not YET sufficiently fashionable to procure them general favor; a long habit of not thinking a thing WRONG, gives it a superficial appearance of being RIGHT, and raises at first a formidable outcry in defence of custom. But the tumult soon subsides. Time makes more converts than reason.”

Hopefully, Paine’s sentiment soon proves true.