This content is from: Corner Office

Firms Resigned to Getting Sued Over 401(k) Plans

"We'll all get hit with a lawsuit if we haven't already," says one major plan sponsor. "It's just a matter of when."

Sponsors of U.S. corporate defined contribution plans – which have been wracked by litigation in recent years – care much more about savings rates and investment options than dodging lawsuits, according to Cerulli Associates research released this month.  

Asked to name their two top priorities, 401(k) sponsors most often cited "improving overall financial wellness of employees" (chosen by 31 percent), maximizing savings rates (picked by 30 percent), and improving the quality of the investment lineup (selected by 27 percent). "Minimizing fiduciary risk/avoiding litigation," meanwhile, was a top tier priority for just 16 percent of respondents, only ranking ahead of new regulation navigation. 

But their record keepers seem to be out of the loop. When Cerulli surveyed them, just over a third of these service providers expected that lawyer-ducking would rank among clients' leading concerns. 

Cerulli analysts suspected that record keepers were "overweighting" this topic for two major reasons. First, "oftentimes a trend feels more prevalent than it actually is if it occurs among mega plans, which hold the most assets by plan asset segment, but are comprised of a relatively small number of plans," the report stated, pointing out that fewer than 0.1 percent of all U.S. DC plans are larger than $1 billion.

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The second reason, according to the report, is that some of the litigation has involved record-keeping firms, and as a result "they are hypersensitive to this topic." 

Fees were another area on which the record keepers had their clients' interests wrong. Reducing plan administration costs ranked as a top-two priority for 23 percent of surveyed plan sponsors, but four-in-ten administrators pegged it as a leading concern. 

"The record keepers' response likely reflects their sensitivity to this specific priority and their experience 'feeling the squeeze' as record-keeper margins continue to come under pressure," Cerulli wrote. 

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