The Case of the Bloated Retirement Plans

Once upon a a time, 401(k) plans and their ilk seemed relatively simple, with a mere handful of investment options. Sometimes employers even helped to pay plan expenses.

Gradually but inexorably, investment choices proliferated and plan expenses expanded, cutting deeper into participants' returns.

Now the times are a-changin'. Young investors have learned that the surest way to increase returns is to lower costs. Bewildering arrays of investment choices now draw complaints, not kudos. Latest sign of the times: a federal lawsuit aimed at employee retirement plans sponsored by Yale, N.Y.U. and M.I.T.

Like previous litigation aimed at corporate plans, also steered by attorney Jerome J. Schlichter, the new suits allege that the schools' plans incur needlessly high administrative expenses and offer investment choices that are mindlessly numerous and sometimes inferior to lower-cost options. (Do N.Y.U,'s employees really want to put their nest eggs into variable annuities?) M.I.T. also draws criticism for choosing New England's investment titan, Fidelity, as plan provider. (Fidelity's CEO has served on M.I.T.'s board of trustees.)

Participants in 401(k) plans and their non-profit equivalent, 403(b) plans, need all the cost-cutting help they can get. Still, older alumni may feel a tinge of sympathy for institutions that find themselves behind the times.

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