A long time in a galaxy, far far away (the time before fee disclosure regulations), I talked to the top salesman of a certain third-party administration (TPA) firm that charged an asset-based fee. The TPA wasn’t a producing one, they just did the TPA work.

I asked the salesman why they priced plans that way because my experience working for TPAs is that it’s no more to run a 100 person $100 million plan than a 100 person $10 million plan, that TPA work is based on the number of heads (accounts). I believed that pricing based entirely on assets wasn’t rational.

Well, some ERISA litigators feel the same way. One of the big staples of the Trader Joe’s case is the fact that Trader Joe’s TPA fees are asset-based and therefore, aren’t rational or prudent under ERISA. “The cost of recordkeeping services depends on the number of participants, not on the number of assets in the participant’s account. Thus, the cost of providing recordkeeping services to a participant with a $100,000 account balance is the same for a participant with $1,000 in her retirement account.” I’ve been saying that for years, the only difference is that I’m not suing anyone.