Designing a product or platform for the retirement plan market is an incredibly complex task, involving a large number of integrated relationships and coordinated protocols between unrelated parties which all must work seamlessly. “Looking under the hood” (its that Detroit thing, y’know. I do wear my “Imported From Detroit” shirt with pride) of even the simplest of 401(k) arrangements will reveal surprisingly sophisticated sets of arrangements.  

It is almost mind boggling to think of what is behind, for example,  executing even the simplest 401(k) transaction: an electronic trade between two unrelated mutual funds on a trust platform.  With my apologies to James Joyce and my English teachers from the Sisters of the Holy Family of Nazareth, the let me provide the following run-on sentence, listing a number of the logistical tasks involved in pulling off of this “simple” transaction:

Protocols and software to make sure the website or smartphone data is handled and stored securely; testing the parties to the transaction under the OFAC regulations (yes, even some of your 40(k) trades are subject to testing for terrorist transactions); the matching of the trade to the right plan to the right participant; the testing under SEC Rule 22(c)2 at both the omnibus and plan level for market timing and restrictions on the trade if it is in violation; testing the trade against plan document terms and, ultimately, the Investment Policy; imposing equity wash restrictions on trades, if applicable; documenting the processes to meet the accounting and auditing standards under SSAE16 (formerly SAS70); the balancing of the plan and participant accounts both before and after the trade, and the accurate timely execution of this balancing in a very tight time frame; transmitting the information between fund companies or platforms using NSCC protocols; obtaining and applying the correct NAV, and dealing with breakdowns related to the untimely setting of a funds’ NAV; the actual execution of a trade, often in a block trade, which may include the use of certain offsetting of trades; the generation and monitoring of soft dollars from the trade; the recording of the trade for the generation of 12b-1 and subtransfer fee purposes; the T-1 settlement of the trade, and the process related to its failure; the management of cash and cash flow arising from high volumes of liquidating trades; handling the mismatching of data and dollars; and the proper posting and balancing of the trade to the plans after it is done.
This is only a partial listing of all of the discrete tasks required to perform this simple 401(k) transaction.  It does not even take into account the plethora of agreements and regulations which apply at every stage of this arrangement to legally enable them;  the procedures related to the marketing and distribution of these products and the design of the compensation related to them; or the massive amount of tax and ERISA compliance services integrated at every stage.  These pieces are governed by a fascinating combination of state and federal law, including securities laws, banking laws, tax, insurance and others.
These steps become geometrically more complicated when you have other services or platforms involved. Think about what happens when an annuity contract or a self-directed brokerage account is added to the equation. Take a look at the flow charts at at the beginning  of that link, which outlines a process than Dan Herr and I put together on annuitizing from a mutual fund based 401(k). There are a lot of moving pieces. 
In short, a retirement plan product is really a package of financial and administrative services.  This knowledge is especially important when one is tasked with understanding the reasonableness of fees related to retirement products and services.  Purchasing investments through a defined contribution plan is so different than an individual making purchases for their own personal account, and it is horribly misleading to suggest otherwise.
Layering on top of all of this the 408(b) 2 and 404a-5 disclosure regulations, and you can begin to understand the challenge that the new ERISA disclosure requirements can create. 408b-2 is especially crucial, as it is a prohibited transaction rule which can through a monkey wrench into the entire Rube Goldberg-type structures which are necessary to make these programs look simple.
I am not an apologist for those who will use this complexity to hide unreasonable fees, something I will discuss in a future post, and this is something upon which advisors must be diligent. Transparency is critical to the fair operation of the retirement plans. But one of the benefits of transparency will be a better understanding on just how complex the system is, and just what it is that these fees support.
The marketplace has worked hard to make the 401(k) plan look deceivingly simple. But it is anything but.