Overheard @: Supreme Court to hear case on 401(k) fees

Stay tuned plan sponsors and providers. Fresh off the news that Sen. Herb Kohl (D-Wis.) was taking up legislation on 401(k) fees, here is more legal froth on fees reported by colleagues at EBN sister publication Money Management Executive:

Last year, the U.S. Court of Appeals for the Seventh Circuit ruled that a case three investors in Oakmark Funds had brought over what they alleged to be excessive fees failed to meet the burden of proof, setting an important precedent that protected fund firms against such cases.

But now, the U.S. Supreme Court will hear the case to determine whether the case set too high a bar.

The investors said Oakmark should charge retail investors the same lower fees that it charges institutional investors, arguing that it provides the same services to both investor classes. The investors further charged that as the firm’s assets rose, Oakmark failed to pass along economies of scale. But Oakmark, and other fund companies in the past, countered that retail investors demand more services than institutional investors.

News You Can Use: Kohl calls for increased scrutiny of target-date funds

From EBN's sister publication Money Management Executive: The chairman of the Senate Special Committee on Aging has called for more scrutiny of target-date retirement funds after several 2010 target-date funds posted huge losses in 2008.

"While it may be too late for those who already have suffered substantial and irreversible financial losses, it is vital that aggressive and timely action be taken to protect the retirement income of all Americans," said Chairman Herb Kohl (D-Wisc.), in letters to Securities and Exchange Commission Chairman Mary Schapiro and U.S. Labor Secretary Hilda Solis.

Target-date funds are meant to automatically rebalance an investor's portfolio to more conservative asset allocations as they approach retirement. In theory, 2010 funds should be very conservative, yet one 2010 fund lost 41% last year, Kohl said.

Because taking excessive risk can be devastating to investors who are close to retirement, he said new regulation or legislation may be needed to make investors more aware of the risk of these funds.