A Plan Sponsor’s Guide to 401(k) Revenue Sharing

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One of my favorite movies of all time is Casino, directed by Martin Scorcese. It doesn’t get as much love because it is often compared to GoodFellas, which was another mob movie that was directed by Scorsese, and also starring Robert DeNiro and Joe Pesci. Despite the criticism, it’s a heck of a movie. One of my favorite scenes is when the man who helped the mob bosses skim the money from the casino count room, John Nash, was talking about how casino employees skimmed money from the money they were skimming. The employees were robbing the folks who were robbing the casino in which Nash said was “leakage”. Leakage was an acceptable part of the casino skimming business because no matter how well you treated the employees, the employees are still going to steal a little extra for themselves. While the administration of 401(k) plans and the selection of investments are certainly more legal than casino skimming, the use of revenue sharing is “401(k) leakage”. The problem with revenue sharing is that many plan sponsors are unaware of the true cost of the “free money” that mutual fund companies pay third party administrators (TPAs) to offset plan expenses. This cost is about the true cost of all of that “free revenue sharing money” and why plan sponsors may consider avoiding all revenue sharing pay funds.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ary Rosenbaum, The Rosenbaum Law Firm P.C. | Attorney Advertising

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