A tsunami of litigation hit the U.S. defined contribution market several years ago, with hundreds of employee lawsuits claiming misdeeds by their companies’ retirement plans.
The trend — while painful for many — has made 401(k) plans better overall, according to Robyn Credico, head of defined contribution consulting at Willis Towers Watson.
It’s also not going anywhere, in her view.
“The lawsuits are continuing,” Credico said Monday at a Prudential press dinner. Now, attorneys are focusing on smaller 401(k) plans, 403(b) plans, and health care organizations.
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As a whole, the suits “have had a positive impact on the plans that are being offered to employees,” Credico said. “A lot of employers now pay a lot more attention to fees.”
Plan sponsors typically insist on breaking out record keeping and investment costs, for example, and larger retirement plans avoid revenue-sharing arrangements with service providers, which tend to be opaque.
“Many of our clients do studies every three years now to make sure they understand what they’re paying in all those areas,” Credico said. “If there’s an opportunity for improvement, they take it.”
Initially, some corporate plan investors predicted — often privately — that litigation would led to worse outcomes for participants. Sponsors and chief investment officers would be too afraid to innovate, the thinking went, and design menus around dodging lawsuits instead of securing retirements.
That hasn’t come to pass, according to Credico. “We haven’t seen any reduction in creativity.”
Instead, lawsuits have become almost normalized, especially for companies with $1 billion-plus 401(k) plans.
“Anybody can get sued,” Credico concluded. “Speak to some employers who get sued, and it’s the worst day they can imagine. But if you have the right processes — benchmarking, analyzing, documenting your results — you can get the suit dropped or diminished.”
The first step for plan sponsors, she said, regardless of plan size, “is making sure you understand what you’re paying for. Because for a long time, a lot of employers didn’t.”