In August 2025, the White House issued an Executive Order directing federal regulators to find ways to allow 401(k) plans to include private equity,  cryptocurrency, and other alternative assets. The goal is to increase investment options for these plans, which could lead to better diversification and higher returns.[i] 

That policy shift comes alongside growing demand from participants.  According to the 2025 Schroders U.S. Retirement Survey, 45% of workplace retirement savers said they would invest in private market assets if their plan offered them.  And 77% of those interested said they’d even increase contributions if alternatives were available.

Despite that suggested strong interest, only 12% of those surveyed considered themselves very knowledgeable about how those investments actually work. [ii]

Clearly, the survey suggests demand is real, but so is the education gap on these very complex investments. And that disconnect may pose the greatest risk of all.

The Allure of Private Markets

Alternative investments are often marketed as exclusive, diversified, and potentially higher-return, pitched as a way to “go beyond the 60/40 portfolio.” But what sounds promising in theory does not always hold up in practice. Research shows that losses can be steep in times of market stress. For example, a 2024 report in the Journal of Empirical Finance found that listed private equity fell 9% to 44% during the COVID-19 market shock. [iii]

To make matters more complicated, private funds typically lack the transparency of traditional investments, making it difficult for investors to determine their current value. Large institutions may have the resources and mindset to weather these uncertainties, but the average 401(k) participant usually does not.

What about crypto? The volatile modern investment has taken dramatic, double-digit drops at times.  Bitcoin fell by 84% in just one year, for example, starting in December 2017. [iv]  While it recovered and went on to new highs, how many people could withstand seeing those dramatic falls in their retirement nest egg? 

What Retirement Experts Are Saying

Many specialists urge caution.  Alicia Munnel, a senior advisor of the Center for Retirement Research at Boston College, notes that “As far as I can see, the only party pushing for private equity in 401(k) plans is the private‑equity industry.” [v]

Munnell notes that even sophisticated pension funds have struggled to achieve better results using these usually high-fee strategies.  And S&P Global noted that “private equity funds are accelerating their outreach to retail investors as capital flows from institutional investors slow.” [vi]

Granted, there are two sides to every story. But retirement plan sponsors must weigh both participant outcomes and their own fiduciary risk. Adding alternative investments to your 401(k) lineup could ultimately pose harm to both.

The Hidden Dangers Plan Sponsors Face with Alternative Investments

Here are a few of the most commonly cited concerns about adding private equity, cryptocurrency, or similar investments to retirement plans:

Higher Costs and Hidden Fees

Alternative investments such as private equity charge performance fees, layered management costs, and administrative add-ons that can significantly erode long-term returns. Without scale or negotiating leverage, smaller plans may face even steeper expenses.

Illiquidity and Daily Valuation Conflicts

401(k) participants are accustomed to daily pricing and the ability to move assets at any time. Private investments often lack those features, making them a mismatch with participant expectations and creating administrative challenges for plan sponsors.

Transparency Issues

Unlike mutual funds, alternative assets may not have consistent valuation methodologies or easy-to-understand performance reporting. That can make it difficult for participants to make informed decisions and more challenging for sponsors to justify their inclusion.

Legal Exposure

The most underappreciated risk is fiduciary liability. There is currently no legal “safe harbor” for adding alternative investments to 401(k) plans. Sponsors remain responsible for monitoring costs, suitability, performance, and participant understanding.

The Intel Lawsuit: A Cautionary Tale

Even large employers with extensive resources have faced legal challenges after including alternative investments in their plans. One high-profile example: Intel.

Intel was sued by plan participants who alleged that the inclusion of alternatives, including hedge funds and private equity, exposed them to unnecessary risk and underperformance. While Intel ultimately prevailed in court, the company had to spend years in litigation before that conclusion was reached. [vii]

For smaller plan sponsors without in-house legal teams or deep compliance resources, the exposure can be even more detrimental.

What Plan Sponsors Might Consider Asking

While each plan’s situation is different, some of the questions being raised in the industry today include:

• Do these investments benefit our participants, or do they just sound good in a pitch deck?
• Can we clearly explain these complex investments in plain English?
• Are the fees and risks appropriate for our workforce?
• Do we have a documented due diligence process that holds up under scrutiny?
• Are we prepared for the operational requirements and fiduciary oversight they demand?

Until regulatory agencies issue formal guidance or legal protections, these remain important questions.

Final Thought

Exploring new ideas is part of progress, and retirement plans will continue to evolve. Some innovations may eventually prove to provide better outcomes. But for now, the combination of high fees, low transparency, and a lack of regulatory safeguards poses a real risk to alternatives within 401(k) plans.

Want help reviewing your plan’s investment options, or simply understanding what’s changing in the retirement space?

Let’s connect

[i] https://www.whitehouse.gov/presidential-actions/2025/08/democratizing-access-to-alternative-assets-for-401k-investors/

[ii] https://www.schroders.com/en-us/us/individual/media-center/schroders-study-finds-nearly-half-of-retirement-plan-participants-would-invest-in-private-markets/?utm_source=chatgpt.com

[iii] https://www.sciencedirect.com/science/article/pii/S092753982300124X

[iv] https://www.usatoday.com/story/money/personalfinance/retirement/2025/09/22/401k-options-including-bitcoin/86291758007/

[v] https://crr.bc.edu/workers-do-not-need-private-equity-in-their-401k-plans/

[vi][vi] https://www.spglobal.com/en/research-insights/market-insights/private-markets/private-equity#private-equit-funds

[vii] https://www.wagnerlawgroup.com/wp-content/uploads/sites/1101401/2021/07/IntelClassActionOpensNewFrontierinLitigation.pdf

Think your organization’s retirement plan is safe because you’re doing everything by the book: paying fair fees, hiring reputable vendors, following the rules? Think again.

A recent Supreme Court ruling involving Cornell University just shook the foundation of the retirement plan industry.  Now, even following best practices might not shield you from a lawsuit. If you sponsor a retirement plan, this ruling should be on your radar.

Even a Well-Run Plan Is Now a Legal Target

In that decision, the Court lowered the bar for lawsuits tied to plan fees, service providers, and fiduciary decisions, even if you’ve made those decisions for years without issue. Employees can now sue without showing that you did anything wrong.  Instead, the burden of proof is now squarely on your organization to prove it did everything right.  

Like many of your peers, you might think your plan is well-run. But under this new legal standard, that’s no longer enough. Unless you can back up every decision with clear, documented justification, you could be exposed.

The Hidden Risk in Day-to-Day Retirement Plan Administration

According to ERISA expert Fred Reish, this new legal development is a reason to worry.   He explains that “every plan commits prohibited transactions.” That likely includes yours. Simply paying a recordkeeper, investment manager, or other service provider is technically a transaction with a “party in interest.”  That’s normal and nothing new. And it’s not illegal—if the plan meets certain conditions laid out in ERISA regulations, like ensuring services are necessary and fees are reasonable.

Here’s the new twist: in April 2025, the Supreme Court ruled in Cunningham v. Cornell University that plaintiffs don’t need to prove those conditions weren’t met. Now, the burden is entirely on plan fiduciaries to demonstrate they followed the rules.

Guilty Until Proven Compliant

Previously, if an employee filed a lawsuit claiming a prohibited transaction, the court might dismiss the case unless the plaintiff could show upfront that the plan was unreasonable. That safeguard is gone.

Now, it only takes a plausible allegation that the plan paid someone like a recordkeeper or consultant (which every plan does). And just like that, you’re in litigation, and forced to take the time, expense and distraction to defend every aspect of your process.

That includes:

• How you selected your vendors
• Whether the services were necessary
• How you determined the fees were reasonable
• Whether you benchmarked against comparable plans
• What documentation you kept

If that sounds like a tall order, it is. And the cost of defending a lawsuit, even one without much merit, can be enormous.

Justice Alito’s Warning: Routine Actions Can Now Trigger Lawsuits

Even the Supreme Court seemed uneasy about how far this could go. Justice Samuel Alito called it out in a separate opinion:

“The upshot is that all that a plaintiff must do … is to allege that the administrator did something that, as a practical matter, it is bound to do.”

In plain English? Even doing what every plan sponsor is supposed to do, like hiring a recordkeeper, can now be grounds for a lawsuit. The courts won’t dismiss it early. You’ll be forced to defend your decisions in court unless you’ve got clear documentation that everything was necessary and reasonably priced.

Why This Matters for Your Organization

You don’t need to run a giant university like Cornell to be affected. The ruling applies to every employer that sponsors a retirement plan governed by ERISA. That includes businesses of all sizes, many of which lack the resources or legal expertise to navigate complex fiduciary defenses.

And with the burden of proof now shifted, plaintiff firms don’t need a smoking gun to drag you into court. They just need a few basic facts, and you’re left scrambling to justify every decision.

What Can You Do to Prepare?

Clearly, risk has risen.  That’s why it’s wise to go back and ensure you have solid processes and documentation systems in place.  Here are some ideas to consider:

1. Benchmark fees regularly

Don’t assume your recordkeeper or advisor is charging a fair price just because you’ve worked with them for years. Use independent benchmarks and document your process.  (For more information please see our previous article on the topic.)

2. Justify every vendor relationship

Every service provider should meet a clear need. Why are they on the plan? What services do they deliver? Are the participants getting value?  Put it in writing.

3. Review and store your 408(b)(2) disclosures

These required disclosures show the fees and services provided. Review them and keep them organized.

4. Keep notes on every fiduciary decision

Anytime you review fees, evaluate a new provider, or renew a contract, document the discussion and rationale. A short summary in meeting minutes or a decision memo can be your best protection later. 

5. Train your retirement plan committee

Everyone involved in plan oversight must understand these risks.  This is especially important for those who are not finance or legal professionals, so be sure to keep them updated and ensure they know what’s at stake.  Because if something goes wrong, fiduciary liability can extend to individuals, not just the company.

For more specifics, please see our previous article on the topic of best practices for retirement plan documentation.

Bottom Line: Focus on Defensive Documentation

You don’t need to panic, as every plan sponsor is in this same boat.  But you do need to take action and ensure you’re adequately documenting all retirement plan actions.

Fred Reish warns, “The plaintiffs’ bar is very aware of this, and we are likely to see more cases in the future.” If your plan’s documentation is sloppy or your fees aren’t defensible, this legal shift turns everyday decisions into potential liabilities.

By taking action now, you can reduce your risk and strengthen your position if litigation arises. ERISA strategist Tina Anstett notes that it will take time to see how lower courts apply this ruling—and that future legislative relief is possible. But until that happens, the responsibility falls squarely on plan sponsors to document, defend, and prepare.

Wondering if your organization’s retirement plan is at risk?

Schedule a complimentary review today.  We’ll help you spot any weak points and learn how to remedy them before they become problems.

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More than half of American workers feel they are behind on retirement savings according to a recent Bankrate survey. [i] Some individuals are not just worried—they’re wondering if retirement will ever be a reality.  But here’s the good news: a new provision under the SECURE 2.0 Act could be the lifeline your older employees need, allowing them to save significantly more for a few years.  The catch? One survey found that 55% of eligible workers don’t even know this time-sensitive opportunity exists. [ii] That’s where you come in. In this article, we’ll break down the new Super Catch Up Contributions, explain why they matter, and show you how to help your employees take full advantage of this powerful benefit.

New for 2025:  Super Catch-Up Contributions for Older Workers

Since 2002, the Economic Growth and Tax Relief Reconciliation Act has allowed workers aged 50 and above to make catch-up contributions. This feature enabled older employees to save a bit more annually, helping them bolster their retirement savings as they approached the end of their careers.

However, the SECURE 2.0 Act takes this capability to a new level with the introduction of a “super catch-up” provision starting in 2025.  This significant enhancement enables employees aged 60 to 63 to contribute about $11,000 more annually on top of the existing contribution limits.  Unfortunately, not everyone is aware of this, which may mean lost opportunities.

How It Works: A Closer Look at Super Catch-Up Contributions

The new super catch-up provision is designed to help employees in their early 60s save more during what is often their peak earning period. Beginning in 2025, employees aged 60 to 63 can contribute an additional amount equal to the greater of $10,000 or 150% of the regular catch-up limit for that year. For 2025, this amount is projected to be $11,250. This amount is on top of the standard 401(k) contribution limit and the traditional catch-up contributions for employees over 50, which means eligible employees could save as much as $34,750 in a single year.

This opportunity is time-sensitive: once employees turn 64, the standard catch-up limit of $7,500 applies. Because the window is limited, plan sponsors should communicate these changes effectively, helping employees take full advantage of this enhanced savings opportunity.

Which Plans Are Eligible for Super Catch-Up Contributions?

The new super catch-up contribution provision applies to several types of employer-sponsored retirement plans, including:

• 401(k) plans
• 403(b) plans
• Governmental 457(b) plans
• SIMPLE IRAs (with adjusted limits specific to these plans)

However, not all retirement plans automatically offer catch-up contributions, and employers need to review their plan documents to determine if these features are already included. If your plan doesn’t currently allow catch-up contributions—or if it isn’t structured to accommodate the new super catch-up provisions—it’s essential to take action now if you’d like to add it.

How Plan Sponsors Can Prepare

You may need to update your plan and communication strategy to ensure your employees can take advantage of super catch-up contributions. While you need to work closely with your retirement plan professionals to do this, here are general steps to consider:

1. Update Plan Documents: If you haven’t already, work with your plan administrator to amend your retirement plan documents to include the new contribution limits and age-specific provisions.
2. Coordinate System Adjustments: Collaborate with payroll providers and recordkeepers as needed to update contribution tracking systems. This step is critical to ensure accuracy and prevent errors when employees begin making larger contributions.
3. Communicate Proactively: Employees can’t benefit from these changes if they’re unaware of them. It’s crucial to create an engaging communication strategy to inform eligible employees about the new limits, emphasizing the benefits of maximizing contributions. For best results, we recommend using multiple channels—emails and webinars, for example, to reach employees effectively.

Key Takeaway:  Strengthening Financial Futures for Everyone

The super catch-up provision represents a win-win for both employees and employers. Employees can build greater financial security during a critical time in their careers, while organizations can achieve a more retirement-ready workforce.  So, if you haven’t already, take action now to ensure your team can benefit from this unique opportunity before it’s gone.   

Looking for help managing your retirement plan?

Contact us for a complimentary consultation.

[i] https://www.bankrate.com/retirement/retirement-savings-survey/

[ii] https://www.benefitspro.com/2025/01/20/new-401k-catch-up-contributions-key-changes-impacting-pre-retirees-in-2025/?slreturn=20250124180136

The numbers are staggering: a recent survey by FinanceBuzz revealed that almost 40% of Americans with 401(k)s opt for early withdrawals. Shockingly, less than one-third of them manage to repay any of the funds. [i]  These withdrawals have far-reaching implications—not only depleting accounts but also undermining these individuals’ long-term financial security.  As a plan sponsor, this is a significant concern on many levels.  This article will examine things you can do to help stem the tide.

Understanding the Problem’s Scope

A large portion of the American workforce is already shockingly underprepared for retirement. Research by Prudential found that 67% of 55-year-olds fear they will outlive their savings. [ii]  Early withdrawals exacerbate an already dire situation. Each time a participant withdraws funds prematurely, they not only typically face hefty taxes and a 10% penalty but also forfeit potential market growth. For instance, a $10,000 withdrawal at age 35 could mean missing out on roughly $40,000 in compounded growth by retirement age, assuming a 7% average annual return.

Moreover, the habit of early withdrawals can create a snowball effect, leaving participants habitually depleting their retirement funds rather than viewing them as untouchable reserves. For those already financially vulnerable, these habits can be devastating over time.

Many Participants Unaware of Recent Law Changes

As part of the Secure 2.0 Act tax law changes, the IRS now allows a one-time, penalty-free withdrawal of up to $1,000 from a retirement account per year for emergency expenses. This means that participants can now access a small portion of their retirement savings without incurring the usual penalties. In that recent FinanceBuzz survey, over 80% of workers reported being unaware of this provision. [iii]  

While this new option has some conditions, this knowledge could possibly have helped some avoid larger withdrawals. 

Strategies to Help Combat Early Withdrawals

While plan sponsors can’t control each participant’s actions, they do have a responsibility to help protect the interests of their workers.  Drawing on our four-plus decades of experience in the retirement planning industry, where we’ve helped plan sponsors create better retirement outcomes, we’ve developed a range of strategies to support long-term savings. Here are some strategies to consider:

1. Educational Campaigns on the Topic

Since many participants are unaware of the new change allowing them to remove up to $1,000 annually for emergencies, simple one-time education on this topic might help prevent at least a few withdrawals.  This and other proactive retirement plan education can help participants see the true cost of early withdrawals. Case studies illustrating compounded losses, such as how a $10,000 withdrawal today impacts future income, can be powerful motivators. Sponsors can use anything from simple emails or handouts to digital tools, videos, or interactive calculators to demonstrate how withdrawals harm long-term growth.

2. Enhance Auto-Portability to Reduce Cash-Outs at Job Change

Job transitions are one of the most common triggers for cash-outs. Many participants find the rollover process confusing or tedious and are tempted to take a payout. However, the industry’s latest auto-portability solutions, which automatically transfer a participant’s balance from one employer to another, can help. Sponsors implementing these features help reduce participant leakage at job changes, keeping retirement savings on track.

3. Maintain Competitive, Transparent Fee Structures

One lesser-discussed driver of cash-outs is participant dissatisfaction with fees. When participants perceive high fees or see lower-than-expected returns, they’re more likely to consider withdrawals. Fee benchmarking, a fiduciary responsibility that we regularly facilitate for our clients, can help ensure that plan fees are competitive.  This, in turn, can enhance satisfaction and help minimize withdrawals. Participants who understand their fees are reasonable are often less tempted to cash out.

4. Offer Emergency Savings Plans

The lack of an emergency fund is a common motivator for early withdrawals. Sponsors can consider offering an emergency savings plan alongside retirement accounts, as authorized by Secure 2.0 Act tax law changes. [iv]  This allows participants to set aside funds specifically for emergencies. When employees have an alternative to access for unplanned expenses, they’re less likely to tap into their retirement accounts.

5. Add More Financial Wellness Education

Many workers turn to 401(k) withdrawals because they lack financial literacy or budgeting skills. Sponsors can help combat this through financial wellness programs that cover budgeting and spending basics, debt management, and long-term planning. Programs should also address how to prioritize financial goals, with content addressing paying down high-interest debt, building emergency funds, and preparing for retirement without relying on early withdrawals.

Key Takeaway

The consequences of widespread 401(k) leakage cannot be overstated. For many workers, the result of frequent withdrawals is a retirement savings deficit. Some may eventually face working longer or significantly scaling back their retirement lifestyle. Plan sponsors who take steps to combat these cash-outs not only help participants build retirement security but also demonstrate their commitment to their fiduciary responsibility.

Looking for help managing your retirement plan?

Contact us for a complimentary consultation.

[i] https://financebuzz.com/retirement-withdrawals-survey

[ii] https://www.cnbc.com/2024/06/26/55-year-old-americans-critically-underprepared-for-retirement-survey-.html

[iii] Ibid.

[iv] https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/pension-linked-emergency-savings-accounts

If your organization sponsors a retirement plan, you don’t want to underestimate your potential liability.  Why?  Because along with your organization being liable, you might be personally liable, too.

Several years ago, litigation against 401(k) and other retirement plans was focused on the really large plans.  Since that time, this activity has spread to all sizes of plans. Worse yet, attorneys look for opportunities to target disgruntled employees to seek out potential actions.

As long as this continues, it’s vital to realize that no organization is immune to potential legal troubles.

Fortunately, there are some steps you can take to minimize your potential liability. One important one is keeping good records.

Put it in Writing

If you’ve ever had the unfortunate experience of being involved in any type of lawsuit or legal claim, you probably quickly realized the importance of getting things in writing.

As a retirement plan sponsor, you’ve got significant fiduciary responsibilities. That means you are responsible, both personally and through your organization, to always put the participant’s interests first; you need to make sure the participants’ money is always handled correctly. And you need to administer the plan to the letter of regulations and always use best practices.  That makes sense, since your valued team entrusts the plan with the money they will rely on after they retire.   The plan needs to be managed cost-effectively and transparently.

So there’s no room for error. You’ve got to do everything required of you as a plan sponsor. Then, once you do it, you want to properly document it all.

Keep it Thorough and Formal

Furthermore, you must be very careful to document things in a way that is thorough and formal. In a legal proceeding, everything in writing might be put under a microscope. Worse, if you didn’t document certain things (like meeting minutes, or how you handled participant concerns), that could create risk for you and your organization.

With retirement plans, literally everything you do should be documented. Since we’re dealing with your employees’ money, again, documentation should never be informal. Everything should include sufficient detail about what is being done for the plan, and provide reasoning behind why certain decisions were made. While it might seem laborious, this process is your potential protection if you end up involved in any type of legal claim.

One caveat, though: the documentation needs to remain consistent. If you detail actions that need to be followed up on, then those follow-up actions must also be documented in a similar fashion. If not, your detailed records can potentially backfire on you.

If you’ve got a retirement plan advisor who’s knowledgeable about litigation trigger points, they can help you with this process. Also, your consultants should be providing you with regular reports, which should be added to your documentation.

With the responsibilities placed on you as plan sponsor, this message is vitally important: You must document everything you do for the plan.

Don’t forget to take detailed minutes in your retirement plan meetings. Your retirement plan advisor may provide that service for you, but you should always review those and retain copies in the plan records.

Other areas that should be thoroughly documented:

• Lists of attendees and facilitators at participant education and enrollment meetings
• Copies of all communications sent and received
• Copies of all investment education materials

When handling your participants’ investments, it’s not enough to make sure you’re doing it right; you must also keep detailed records of how you’re doing it. The former protects their money; the latter protects you.

(This was an excerpt from our free eBook, How to Reduce Your Potential Liability as a Plan Sponsor.)

Download our Free EBook for More Tips

For more tips on minimizing your liability as a retirement plan sponsor, download our FREE ebook today:

• Learn about your role as a retirement plan fiduciary
• Action steps you can take to identify any areas where you need to do more
• How to identify and implement best practices

As potential risks rise, make sure your organization is prepared.  Invest a few minutes today to make sure you are doing all you can to prevent problems in the future.

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In life, it’s usually best if we can learn from the experiences of others.  This could not be more true in the retirement plan administration space, where the trend of increasing litigation is not letting up.  If you’re a retirement plan sponsor or a committee member, you definitely want to take note of some recent cautionary tales.

What’s at Stake with Retirement Plan Lawsuits?

According to a Bloomberg Law article, the continued explosion of legal activity has cost retirement plan sponsors over $150 million in settlements just over the past three years.  That doesn’t even begin to factor in the expense of legal fees, as well as the significant time and distraction involved in the litigation process.  Clearly, there is a lot at stake for any retirement plan sponsor or committee member.  

Supreme Court Ruling Opens Doors to More Retirement Plan Lawsuits

In 2022, Northwestern University found itself in the spotlight as the U.S. Supreme Court examined a case against its retirement plan committee.  They were accused of not offering the lowest-cost plan or the best investment funds.   Northwestern tried to raise the bar for legal challenges, insisting that plaintiffs must prove a better option was “actually available” to the plan at the time.  While the Court agreed, the Plaintiffs appealed to the Supreme Court.  And the Supreme Court didn’t buy the argument.  Instead, they sent the case back for reevaluation, overturning the 7th U.S. Circuit Court of Appeals’ dismissal.

Attorneys involved with the case have noted that plan fiduciaries will likely find the 7th Circuit’s latest decision “particularly troubling.”   That’s because the decision does not require plaintiffs to allege actual alternatives were available for the retirement plan decisions.  They only must claim that other options existed, which is not a high bar for litigation.  

This may mean more lawsuits move forward, requiring more resources and time to defend. 

How to Avoid Problems: Lessons from Past ERISA Lawsuits 

Retirement plan administration can be complex.  Recent ERISA lawsuits such as the Northwestern case serve as a reminder of the importance of diligence and best practices.  Let’s examine some key lessons from all of the cases.

1. Regularly review and update plan fees and investment options.  Courts want you to secure good pricing and carefully-chosen investment options for your participants.  So, retirement plan administrators must periodically review and update plan fees and investment options to provide the best choices for participants.  It is not enough to do it infrequently since market prices and offerings evolve and change over time.   Be sure you’re benchmarking fees and evaluating the performance of investment funds on a regular basis.
2. Carefully document the entire decision-making process.  If you end up in court, you want to have significant and detailed documentation.  It’s also crucial to carefully document the rationale and research behind decisions related to plan fees and investment options.  This can help demonstrate that the plan sponsor and committee acted prudently and in the best interest of plan participants based on available options.
3. Engage in ongoing fiduciary training and education.  With so much on the line, retirement plan sponsors should provide ongoing fiduciary training and education.  That way, committee members can stay informed about their responsibilities and best practices for retirement plan administration.
4. Consider using a qualified independent fiduciary advisor.  Since retirement plan committee members have other responsibilities, it can be challenging to remember everything that is required.  Since the stakes are high, it can be best to include a trained professional on your team to help share your liability and minimize the potential for expensive oversights.  An independent retirement plan advisor can help plan sponsors and committees navigate the complexities of retirement plan administration while ensuring compliance with ERISA regulations.  Just be sure to look for a true fiduciary with no conflicts of interest.  Also, be wary of general advisors who may not specialize in retirement plans.  Local wealth managers who dabble as plan advisors may not have a thorough knowledge of industry requirements and practices, leaving your plan vulnerable to mistakes. 

Key Takeaway

It’s important to realize that if you have a retirement plan, you have potential liability.  That’s why it’s critical to treat the entire plan administration process with care. To avoid potential ERISA lawsuits and ensure the best outcome for participants, be sure you’re following accepted best practices and documenting all activities thoroughly.

Want more practical tips on avoiding potential problems down the road?

Download our free eBook on how to help reduce your liablity as a retirement plan sponsor.

Looking for help keeping your retirement plan in compliance?

Contact us for a complimentary consultation.

If you are a retirement plan sponsor, you may wonder if your 401(k) committee’s efforts are on the right track.  With continued litigation in the space, every company should keep its attention firmly fixed on one thing: prevention of future problems.

However, being a part of a retirement plan committee is not that common.  Most people don’t necessarily know what the role entails.  As a firm that specializes in keeping retirement plan sponsors compliant, we often notice that committees can easily spend their time on things that are out of their control.  Then, the more critical issues receive less attention than they need, leaving the door open to potential liability.  To avoid that, here is a quick guide about where retirement plan committee efforts should be focused to help maximize their effectiveness.

You Can’t Control the Markets, So Don’t Try

The stock market is fascinating, no doubt, so it’s basic human nature that we seek to understand it.  But here’s the thing:  no matter how much discussion we have, the movements of the stock (and bond) markets are entirely out of our control.  So while there’s nothing wrong with a quick market update, spending more than a token amount of time on it is not productive and may detract from critical matters.  But too often, we see committees spend too much time discussing market conditions and where the market is headed.

Here are critical areas for your 401(k) committee to focus on instead:

1) Lowering Investment Costs on the 401(k) Fund Lineup.

While you can’t control the market, there’s something critical that you can control, and that’s costs.  Any time you can provide a similar fund lineup with lower fees, you are doing your job for participants.  And the courts have sent a clear message that if you provide high-cost funds when similar lower-cost options exist, you are assuming significant risk.  So do not ignore this area of concern.    After all, every dollar you save a participant in fees creates more retirement savings for them down the road…every year.

2) Lowering Service Provider Costs.

Along with offering low-fee investment options, you must also provide participants with necessary services at reasonable prices.  Those include the roles of recordkeeper, custodian, trustee and investment advisor.  Your committee is responsible for spending your participants’ hard-earned money wisely, so you must ensure they get value in return.  The best way to display your diligence is to do periodic fee benchmarking.

You can start a Request for Proposal (RFP) and go through the entire process.  However, there is an easier way.  You can instead prepare a Request for Information.  This allows you to periodically compare rates.  Then you can use the findings to negotiate a better rate with your existing provider.

One caution: you do need to weigh value with pricing.  You want to avoid switching providers frequently, which could cause new problems or considerable inconveniences.  Also, don’t just automatically accept the lowest price.   Make sure the provider is experienced and highly recommended.

We recommend fee benchmarking about every 3 to 5 years. For our clients, we do this every 3 years as part of our retirement plan advisor services.

3) Monitoring Performance of Your 401(k) Fund Line Up Versus Peers.

Next, you need to monitor performance.  But it is not the general performance of these funds against market indexes that matters.  That, again, is entirely out of your control.   Instead, you must ensure your plan’s funds perform well relative to their peers. If they don’t, the plan sponsor is responsible for monitoring that and swapping out underperforming funds with a better option.

Funds can and do underperform.  Some common causes are changes in management or change in investment strategy. If that happens, your participants may find themselves invested in a fund that is not keeping pace with its peers.

The courts have emphasized that plan sponsors must monitor this and proactively switch funds when needed.   Our firm has a proprietary system that identifies common signals funds give off before underperforming.  We use that system to help our clients proactively switch to better-performing funds when a fund begins to be problematic.  But however you handle it, this is an area that requires the attention of your retirement plan committee.

4) Providing User-Friendly Participant Communications.

One area where retirement plan committees can provide considerable value is by helping to ensure that employees get high-quality communication about the plan.  Frequently this is passed off the Human Resources, but that can be a mistake.  Why?  HR has many priorities and may not have the time and attention to devote to the retirement plan.

This is important from a liability prevention viewpoint as well, since user-friendly materials can encourage successful program use.  But it should be done proactively; it’s not enough to simply improve them only after complaints arise.

Mandatory notices should be seen as the starting point and should ideally be supplemented with more approachable material.  Much of that language is written by regulators or federal authorities and is not necessarily user-friendly.

As a plan sponsor, it is a good practice to provide more education and clarification than the minimum legally required. That may mean adding a cover letter or a separate piece to the required documents as a start, or ideally adding even more educational content.

5) Potential Improvements to Plan Design.

Another important use of your committee’s time is to look for better ways to serve participants.  Most recordkeepers produce detailed reports that show which aspects of your 401(k) plan get the most and least use.  Ask your committee to review reports periodically to see how participants use the plan.

Are participants taking loans from their 401(k) accounts more often? More education on the potential negative impacts of a loan might be beneficial.  Or it may be timely to have conversations about auto–enroll features as more plans find success with those enhancements.

6) Provide Continual Education to 401(k) Committee Members on the Fiduciary Role.

Many retirement plan committee participants need help understanding their role as fiduciaries.  It is a good practice to regularly revisit the topic briefly, so everyone is clear.

Why is that important?  Because the Department of Labor and the legal community are watching.  In 2022, the Supreme Court reaffirmed that employers have an ongoing duty to protect employees in the plan.

So all decisions need to be made for the participant’s benefit.  When a committee member walks into a meeting, they often need to be reminded that their other roles at the company are not relevant in the meeting.  The only thing that matters is always putting the participants’ best interests first.

7) Don’t Forget to Document 401(k) Committee Actions.

Finally, you don’t want to find out the hard way—in court—that your committee didn’t document everything effectively.  Be sure to emphasize the importance of documenting committee reviews and actions.  Even if a committee review didn’t result in a change, it is critical to document the process of evaluating costs and providers.  (Read our previous article on documentation best practices for retirement plan sponsors.)

Key Takeaway

Most retirement plan committees are passionate about helping participants and the company, but this role doesn’t come naturally.  It’s best to check in periodically and ensure your committee is on track so their time can be used most effectively.

Download our Free eBook for More Tips

For more tips on minimizing your liability as a retirement plan sponsor, download our FREE ebook today:

• Learn about your role as a retirement plan fiduciary
• Action steps you can take to identify any areas where you need to do more
• How to identify and implement best practices

As potential risks rise, make sure your organization is prepared.  Invest a few minutes today to make sure you are doing all you can to prevent problems in the future.

Get Our Free eBook

Updated Aug. 4, 2022

Fees have been a continuing focal point of retirement plan litigation, for good reason.  Small percentage differences, over time, can eat away at participant nest eggs.

Because of the frequency of excessive fee lawsuits, it is imperative that you employ best practices related to retirement plan fees.  That means taking the time to develop a documented procedure on how you will help ensure that plan fees are kept reasonable.

Here’s a few tips.

Tip 1.  First, know exactly what you are paying.

One challenge to fee review and benchmarking is the complexity of some fee arrangements.  The financial services industry historically is notorious for hidden and confusing fees, so as the plan sponsor you need to be crystal clear on how all plan provider fee arrangements work.  If you don’t understand this to the letter, you could be putting you and your organization at risk.  That’s why it is always recommended to hire service providers who have transparent, easy-to-understand fee schedules. There’s just too much at stake to not require that.

That also means speaking up.  If existing plan service providers give you fee schedules that are not clean and clear, ask for a different structure.  Or just look for other firms who will provide easy to understand fee schedules.

Tip 2.  Make sure all fees are reasonable and necessary

Along with knowing the fees the plan and participants are paying, you also are required to ensure that the services you are purchasing for the plan are necessary and reasonable.  If they are not providing a very specific and needed benefit, you should probably revisit if they are appropriate.  The last thing you want is an attorney finding expenses paid year after year that are optional.

Remember, as plan sponsor you are serving as a fiduciary for your plan participants.  They are counting on you to spend plan money very carefully.  That means every expense should be justified.  There is no room for extras that don’t provide a measurable benefit to the participant.

What about extras that make your job as plan sponsor easier?  Remember, as a fiduciary, you are legally required to put the participant’s interest first.  Always make decisions keeping that factor in mind.

Tip 3.  Benchmark Everything Regularly

Once you are clear on the above, now you need to make sure you’re getting good value for the plan and participants.  The way you can do that most effectively is through benchmarking.

With benchmarking, you periodically compare your fees against the fees of similar plans.  That way, you can see if the fees that your plan and your participants are paying are more than what others pay.  You can then use that information to negotiate better prices with service providers.

This is good news for participants, of course.

Tip 4.  Use the RFI (Request for Information) Process

One of the best ways to benchmark is to periodically engage in something called the “request for information” process.  For most plans, every three to five years is a good interval for this.  More often and you may end up losing effectiveness.

This process keeps the retirement plan market competitive.  In most cases plan sponsors simply opt to remain with their existing provider, but the RFI process allows them to negotiate a better deal.

If you have a full-service retirement plan advisor, they can help you with this process.  At Capital Research + Consulting, we normally do this every three years for our clients.

Things to keep in mind

While fees are critical, don’t lose sight of the need for experience and the right knowledge as well.  Newer entrants to the retirement plan industry might price lower to gain new clients, but that may expose your plan to someone’s learning curve.

As a fiduciary, you want to make the best decisions possible for your participants, so the fees should always be balanced with the need to hire an experienced provider with the right expertise.

Download our Free EBook for More Tips

For more tips on minimizing your liability as a retirement plan sponsor, download our FREE ebook today:

• Learn about your role as a retirement plan fiduciary
• Action steps you can take to identify any areas where you need to do more
• How to identify and implement best practices

As potential risks rise, make sure your organization is prepared.  Invest a few minutes today to make sure you are doing all you can to prevent problems in the future.

Get Our Free eBook

You’re probably aware that you are subject to potential liability if you offer a 401(k) plan.  That’s because you are usually considered to be a fiduciary of that plan if you’re a business owner, board member or manager of the retirement plan.   In plain English, that means you are expected to put your employees’ interests first at all times.  While that sounds commonsense, sometimes the devil is in the details.  Managing the plan correctly to minimize liability can be very technical and time-consuming.

Still, it is critical, and the potential downside is more significant than ever.  A continued trend of lawsuits against plan sponsors has made plan administration a potential minefield.  According to a recent article in PlanSponsor.com, one fiduciary liability insurance underwriter says claims are so commonplace that fiduciary liability insurance could disappear. [i]

It’s especially serious since, along with your organization being potentially liable, it can extend to you.  Fiduciaries of the plan can be held personally liable as well.

How to Control Your Liability

So clearly, liability prevention and minimization are critical.  Working with an experienced retirement plan advisor is one step that can help you lessen your exposure.  But you need to choose carefully, as not all advisors offer you equal levels of protection.

The key is choosing a retirement plan advisor who acts as a plan fiduciary.  That way they can share your liability.  However, not all advisors are held to the same legal standards.

3(21) and 3(38) Retirement Plan Advisors:  What’s the Difference?

These numbers refer to sections of the ERISA regulations and relate to individuals or firms that provide investment expertise to retirement plan sponsors.  Beyond the numbers, you’ll find these two types of advisors are starkly different in the protection they provide to your organization.

What is a 3(21) Fiduciary?

The 3(21) Fiduciary acts as your Co-Fiduciary.  They are an investment advisor who shares liability with you (as a business owner, board member or named fiduciary of the plan).  This advisor will help you develop your initial fund lineup, review investment selections and make recommendations.  But they don’t make the decisions; you do.  So as the final decision maker, you still retain primary responsibility for fees and performance issues related to the selected funds.

What is a 3(38) Fiduciary?

On the other hand, you can directly delegate discretionary authority to a 3(38) Fiduciary.  This type of advisor acts as a hands-on Investment Manager.  That means they can decide what to include in your fund lineup.  They can also implement it and continue to manage the funds over time.

This frees up your time and allows you to transfer much of the liability to their shoulders.  You are still responsible for the due diligence to hire the right advisor, of course, and maintain liability on that end.  But it is far less since they have taken that piece of exposure on directly.

Which Option Is Best for You?

In this risk-filled environment, you need to decide carefully.  Here are a few points to help you determine the best fit for you and your organization.

1. How much time do you have to commit to retirement plan administration?

If you and your staff are time-constrained, it is wise to consider the more full-service option, the 3(38) advisor.  That way, you won’t risk something getting overlooked by your busy team.

2. How much expertise do you or someone at your firm have on retirement plan administration?

If you or a team member have experience and knowledge about ERISA regulations and retirement plan administration, then a 3(21) advisor acting as a consultant may work for you.  Otherwise, the 3(38) option will provide you with the expertise and knowledge you need to help prevent problems.

3. How much liability protection do you want?

If you want a higher level of liability protection, the 3(38) option is the best choice.  By delegating those responsibilities to the outside professional, they assume most of the potential exposure.

Of course, it all comes with a giant caveat:  you need to choose the right retirement plan advisor.  Be careful…many firms hire local wealth managers who only dabble in retirement plans.  In this litigious environment, that can be an expensive mistake.  You need a firm immersed in this specialty so they know the regulations and what constitutes best practices.   Look for a specialist firm with decades of experience helping firms navigate this tricky landscape.

[i] https://www.plansponsor.com/in-depth/rush-litigation-retirement-plans-expected-continue/

Download our Free EBook for More Tips

For more tips on minimizing your liability as a retirement plan sponsor, download our FREE ebook today:

• Learn about your role as a retirement plan fiduciary
• Action steps you can take to identify any areas where you need to do more
• How to identify and implement best practices

As potential risks rise, make sure your organization is prepared.  Invest a few minutes today to make sure you are doing all you can to prevent problems in the future.

Get Our Free eBook

While COVID-19 may not be the emergency it once was, it’s still out there.  And that continues to impact both people and markets.  If your organization sponsors a 401(k), a 403(b), or some other type of retirement plan, it’s especially important to pay attention.   With the continued uncertainty, chances are that participants will be looking more closely at all of their financial accounts, including retirement plans, in the coming months.

Why It’s More Critical Than Ever

Managing your plan has always been important, but it’s even more so now. Why? Unfortunately, litigation against retirement plans continues to increase.

A recent article published by the American Bar Association noted that ERISA lawsuits are at an all-time high.[i] According to Plansponsor.com, over 83,000 ERISA lawsuits have been filed since 2009.ii

Additionally, 403(b) plans, along with small retirement plans of all types, are being increasingly targeted in those lawsuits.

With layoffs and pay cuts on the increase, there’s no reason to expect this trend to slow…and every reason to anticipate it speeding up.

Your Role as a Fiduciary

If you’re a business owner or a human resources manager with control over your organization’s retirement plan, you’re likely considered a legal fiduciary of the plan. That means you’re responsible to put the participant’s interests above your own at all times.

Unfortunately, this liability is not just pure business liability. As a fiduciary, you could be held personally liable as well, putting your personal assets on the line.

Of course, you’re probably taking all the obvious steps to keep the plan on track. This is where the problem lies; it’s not always the obvious things that will trip you up. It’s often the smaller administrative details that the complex regulations require of you.

Continuous Monitoring Required

One benefit of all this legal activity is the clarification of what’s required of retirement plan sponsors. And what has become clear throughout is that your responsibility is continuous, not one-time.

It’s not enough to set the plan up meticulously and select a great lineup of low-cost mutual funds for your participants to choose from.  According to recent case law, that’s just the beginning of your responsibility.

Here are some examples of what courts have found:

• You must continuously monitor the investments selected for your plan. If any of those mutual funds begin to underperform their peers, you as a plan sponsor are responsible for quickly finding an alternative and replacing the fund.
• As the plan sponsor, you need to frequently audit the plan to make sure all costs and expenses are reasonable. That means comparing your plan’s costs against those of similar plans and negotiating lower rates when needed.

Emphasis on Fees

Not surprisingly, the biggest area of concern is fees. Which makes sense; every dollar of fees directly impacts each participant’s account.  That’s why it’s critical to pay attention to all costs by asking some key questions:

• First, is the service you’re paying for necessary in the first place? Do other plans of your size use that service?
• If the expense is necessary, how much are you paying? Everything you pay should be in line with what other plans of your size are paying, so the participants aren’t being overcharged.
• Are fees transparent and easy to understand?

Complicating matters are the often confusing fee structures in use by service providers.  Fortunately, there’s a solution to that problem:  ask your service provider for a simpler fee structure. If they are unwilling to work with you, consider that a valuable red flag.  Quality firms are very well aware of the litigious environment and should understand your request and work with you to find a better solution.

Who’s Watching?

Of particular concern is that a few law firms have been specializing in retirement plan litigation. Some have been advertising online, seeking employees who are unhappy with their retirement plans.

As you probably know, a lawsuit doesn’t even need to have merit to be extremely expensive to defend.

Reduce Risk With Best Practices

So how do you stay safe?  Our best advice is to make sure you are compliant with all regulations and implement best practices with your retirement plan administration.

Also, it’s a good idea to do everything with the assumption you might get called into court to prove it.  To put it another way, now is not the time to be casual with recordkeeping.  Instead, your motto should be document, document, document.

Please see my recent article for further tips on effective documentation practices.

Reduce Your Liability by Sharing with an Expert

Another way to manage risk is to share your liability with a specialist firm that has expertise in retirement plan administration.

There are two different ways to do this. First, you can hire a 3(21) advisor, who will share that fiduciary responsibility for plan management with you. Even better, you can hire a 3(38) advisor. (These numbers simply refer to that numbered section of the Employee Retirement Income Security Act of 1974 (ERISA).)

The 3(38) advisor can make investment decisions for your plan and assume responsibility for implementing them. In this way, they take on more liability for issues, thereby reducing yours.

Choose Very Carefully

One critical thing to remember is that everything you do needs to be well-reasoned and documented. That includes hiring the right financial advisor for your retirement plan. If there ever were any legal claims, you would want to be able to show the steps you took to screen and select the best retirement plan advisor.

You can read my previous article providing specific screening steps so you can hire properly.

One More Complication

Finally, one more challenge was created with the arrival of the pandemic, and that’s some new provisions in the CARES Act. The Coronavirus Aid, Relief and Economic Security Act was created to help people and businesses impacted by COVID 19.[ii]

There have been a few changes impacting retirement plans:

• If your business has been heavily impacted by the virus, you may have the ability to reduce or temporarily suspend your employer contributions.
• Several changes may be available for your participants, including increased ability to cash out a portion of their account or take a loan to help them with income losses.

Any change to the plan should be done carefully and with the best interest of the participants in mind.

Also, this is evolving as the IRS works to interpret the newly passed CARES Act.

Conclusion

Unfortunately, it’s not an easy time to be a retirement plan sponsor, but your responsibility to your participants doesn’t disappear in a pandemic. Given the high stakes, it’s critical to make sure you are doing things according to regulations and best practices. In the case of avoiding expensive legal problems, an ounce of prevention really is worth a pound of cure.

[i] Jara, José M. ERISA: THOU SHALL NOT PAY EXCESSIVE FEES! www.americanbar.org/groups/real_property_trust_estate/publications/ereport/rpte-ereport-winter-2019/erisa–thou-shall-not-pay-excessive-fees-/.

[ii] Manganaro, John. Assessing Courts’ ERISA Decisions in 2018. 31 Dec. 2018, www.plansponsor.com/assessing-courts-erisa-decisions-2018/.

[ii] “Guide to the CARES Act.” Guide to the CARES Act – U.S. Committee on Small Business & Entrepreneurship, U.S. Senate Committee on Small Business & Entrepreneurship, www.sbc.senate.gov/public/index.cfm/guide-to-the-cares-act.

Download our Free EBook for More Tips

For more tips on minimizing your liability as a retirement plan sponsor, download our FREE ebook today:

• Learn about your role as a retirement plan fiduciary
• Action steps you can take to identify any areas where you need to do more
• How to identify and implement best practices

As potential risks rise, make sure your organization is prepared.  Invest a few minutes today to make sure you are doing all you can to prevent problems in the future.

Get Our Free eBook