The Supreme Court is slated to hear the Tibble v. Edison case in 2015, which promises to be a landmark ruling for the corporate retirement space. The case was previously heard by the 9th Circuit Court of Appeals which ruled that the plan sponsor, Edison International, violated a section of ERISA by introducing retail-class mutual funds (along with their high expense ratios) to participants without considering lower cost institutional-class mutual funds as an alternative. Even worse, the retail-class options were stuffed with a revenue sharing model, paid by participants, in which a portion of these fees were kicked back to Edison.
My personal definition of revenue sharing is a deliberate overcharge at the fund level (which means participants are paying the overcharge) in an attempt to hide compensation for other vendors and the middlemen involved with the plan. The middlemen are certainly a necessary component of any 401(k) program, but the major issue with revenue sharing is that it lacks transparency, which makes it difficult to detect the amounts these people are getting paid. Everybody has a right to get paid, but when that compensation is covered up it creates a perception of impropriety along with an environment ripe for abuse.
