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Sunshine or menace?
Yale law prof rattles employers

Ian Ayres ’81, ’86JD, has (temporarily) passed himself off as African American, butted heads with his students over in-class web surfing, and been dubbed one of the "most obnoxious" Princeton applicants ever. (Perhaps that's why he chose Yale.)

Now the economist and Yale Law professor has a new occupation: playing Big Bad Wolf in the 401(k) world.

"A Professor Puts the Scare in Plan Sponsors," one investment industry analyst writes, with the subheadline: "That's a nice 401(k) plan you've got there . . . it'd be a shame if something happened to it."

In a somewhat approving tone, the commentator—Morningstar research VP John Rekenthaler—explains that Ayres sent thousands of letters to employers that offer 401(k) retirement savings plans. In the letters, Ayres reportedly tells the employers that he used 2009 data from federal filings and from a private research company called Brightscope to calculate which plans charge employees the highest fees.

The letters say Ayres intends to publish this information next spring—"using Twitter, with separate hashtags for each company," the Wall Street Journal reports—which Rekenthaler and others interpret as a threat:

"I have identified your plan as a potential high-cost plan," Rekenthaler quotes an Ayres letter as saying. "We recommend that you improve your plan menu offerings, including adding lower fee options, both at the plan and fund level, and consider eliminating high-fee funds that do not meaningfully contribute to investor diversification."

Adds Rekenthaler: "Or else? Ayres doesn't have a history of filing lawsuits, but the tone rings ominously for 401(k) plan sponsors, who have faced 30 lawsuits for having overly high fees over the past several years."

Rekenthaler thinks the scrutiny is good for the public. At the industry news site, the reaction is less friendly: a search for "Ian Ayres" turns up headlines about "Yale bully Ian Ayres" and "Yale threat letters," with Brightscope's CEO saying he was "shocked" by the "menacing letters."

The letters' recipients "have lighted up the phone lines of 401(k) consultants, administrators and trade groups in their search to figure out if they are doing something wrong," the Journal reports.

Ayres referred the Journal reporter to a Law School spokeswoman, who said that when the professor publishes his findings, "no company-specific data will be publicized that is based on 2009 data." She didn't know whether Ayres would name names using more recent data.

Filed under Ian Ayres, Law School
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