Pay To Play In 401(k)? Pimco, Dodge & Cox, American Funds Eyed

By Murray Coleman

Veteran funds reporter Ian Salisbury of Dow Jones Newswires takes a look at the estimated $3.5  billion a year paid by mutual funds to packagers of 401(k) and related defined contribution plans.

It’s a practice that’s perfectly legal. Advocates  point out that such payments are used to cover plans’ administrative costs. They argue that while such tactics might influence which funds a plan offers, it’s a win-win situation for investors since such fees help to lower overall plan expenses.

Salisbury notes:

“But there’s little evidence these costs truly even out, and many critics argue that the roundabout accounting obscures the true cost of retirement plans from employees.”

At the request of Dow Jones, pension consultant BrightScope used its database to gauge payments by a handful of individual funds that are popular in retirement plans.

It estimated:

  • The Bill Gross-led Pimco Total Return Fund (PTTRX) pays about $145 million a year for what’s termed “shelf-space.”
  • The popular Growth Fund of America (AGTHX) pays $75 million a year to retirement plans.
  • The Dodge & Cox Fund (DODGX), whose managers are famous for refraining from self-promotion and avoiding the media, pays around $20 million a year.

Salisbury presented BrightScope’s numbers to all three companies. Pacific Investment Management Co., whose Pimco Total Return fund holds $50 billion in retirement assets on more than 13,700 plans according to BrightScope, didn’t comment directly on the figures.

Pimco did say it provides “a range of share classes” with different fee options for employers and investors. It also told Salisbury: “We strongly support efforts to bring fee transparency to both plan sponsors and participants.”

American Funds also declined to comment, but said it didn’t dispute BrightScope’s totals. Dodge & Cox said what it pays to plan packagers is “much lower than the industry average.”

The report notes that the Department of Labor has said it will require plans to start telling employees if payments from funds are used to cover plan costs starting next year.