Option 'Null"

Not too long after my first daughter was born, my wife decided that we needed to have a vehicle with four doors. All other decisions about the car were mine—color, options, make, model, etc.—so long as it had four doors (anyone who has ever wrestled with a car seat, or with getting a child into and out of a car seat, will appreciate why).

In this particular case, even though I hate car shopping, I had done my homework—the service record of the make made it a cinch, the dealership was close, my wife and I saw eye-to-eye on color, and, for my money, there was only one model (in that make) whose four-door version looked sporty enough to satisfy my sense of a car I wouldn’t mind being seen driving. There was just one problem. This particular manufacturer had its model options arranged in three very specific packages. The model that had the features I wanted—for the price I wanted to pay—was the middle option. The one option I really wanted (and I REALLY wanted it) that wasn’t included in that middle option was a sun roof.

Model "Behaviors"

The dealer was able to give me the model I wanted with a sun roof—I would just have to wait some extraordinary period of time to take possession (this at a time when this car manufacturer was, in many cases, commanding a premium above sticker price due to limited availability) and pay more, of course. Oddly, it would wind up costing me almost as much for that modified mid-range model as if I just bought the higher-end version. As it turned out, that was more than I wanted to spend on that car. I didn’t want to wait that long for the modifications, nor did I want some of the “extras” on the higher-end model. Ultimately, I decided that, while I surely wanted the sun roof, I wasn’t willing to be “snookered” into buying the model the dealer surely wanted me to buy.

I’m sure that the manufacturer’s position on such matters was carefully developed, and I’m just as sure now as I was at the time that the desire for a sun roofed vehicle that could be driven off the lot had driven many a buyer to simply “upsize” their purchase. And while I was never really “happy” with that decision (the car worked out fine—the daughter who used to ride in that car seat now drives it), ultimately, I gained the satisfaction of having stood by my principles.

A Growing Concern

Much of the talk at the 401(k) Summit this past week was about fees: transparency, mandatory disclosures, lawsuits. In relatively short order, plan sponsors are going to be able to see how much they are paying for the services their plans receive. For some, that’s going to be a mere formality, of course; but for others—well, I suspect they’re going to feel that they are paying for things they don’t want, and perhaps aren’t getting.

It shouldn’t be all about how much you’re paying, of course. ERISA requires that the fees be reasonable, not dirt-cheap—and the determination of reasonable surely requires not only an awareness of what is being paid, but also an appreciation of the services provided relative to that remuneration. Bundled pricing has, in many respects, made it easier for many to buy (and sell) a retirement plan “package” without delving into those details. However, IMHO, it also has had a tendency to obscure the costs associated with individual components of the package. Like that sun roof, it isn’t that they think it is, or should be, free—but presented with the detailed invoice, they may not think the price is “reasonable.”

It’s not altogether sure to me that plan sponsors will relish the ability to probe those depths—but I don’t think it’s going to be an “option” in the near term, if it ever was.

- Nevin E. Adams