October 17, 2014
We all know that the Wall Street types find it hard to get by without a helping hand from the government (like the bailouts), but many people don’t realize all the different ways in which the financial industry manages to siphon away income from the productive economy. Floyd Norris has an interesting piece about a lawsuit coming before the Supreme Court in which an employer (Edison International) is being sued by its workers for deliberately picking a 401(k) plan with high administrative costs.
There is a procedural issue which the court must decide about how far back in time plaintiffs can go for bringing a suit. However there is also an important substantive issue. The workers are claiming that the company deliberately chose a higher cost plan, with the fees coming out of workers’ accounts, because the fund manager gave Edison a kickback.
There is a considerable amount of money at stake with this issue. Norris puts the gap in costs at roughly one-third of a percentage point. If this were applied to the more $8 trillion currently held in 401(k) type accounts, it would come to more than $25 billion a year. This is effectively money taken away from workers and given to the financial industry. This is a bit more than 30 percent of what the government is projected to spend on food stamps this year.
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