Employer anxiety about offering you a 401(k) plan is rising rapidly, and for potentially good—and expensive—reasons. Class-action lawyers are targeting a wider variety of alleged breaches of fiduciary duty in retirement offerings and suing a broader range of entities, including college and university 403(b) plans.
The latest burst of litigation came Wednesday by Schlichter Bogard & Denton, a law firm with a track record of wringing big settlements out of some of the nation’s largest corporate 401(k) plans. The firm’s new push into the nonprofit education world’s version of 401(k)s includes litigation against Cornell University, Northwestern University, and the University of Southern California and similar cases against plans at Yale University, New York University, Duke University, and Vanderbilt University.
Your company may be worried. A new survey of small and midsize plans showed that 38 percent of them are concerned about the risk of being dragged into court, vs. 24 percent a year ago. Additionally, this year was the first time it came in as a top reason plan sponsors are turning to retirement advisers, according to the seventh annual Fidelity Investments Plan Sponsor Attitudes Study. The data on smaller plans, defined as ones with 25 to 2,500 participants, were culled from a larger study of 976 sponsors with as many as 10,000 participants.
The rise in employer fear means more people in 401(k)s may find their company adding a new adviser or moving to a different one. The number of companies looking to change advisers hit 23 percent in the study, a new high. Almost 70 percent of plans cited the willingness of an adviser to “take on a formal fiduciary role” as important. An adviser change may come in tandem with the winnowing of a confusing thicket of investment options and a switch to lower-priced versions of mutual funds.
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