Managing and Mitigating Unfavorable and Costly Trends

Many employers may not be fully aware, but there are increasing fiduciary, compliance, and litigation risks associated with today’s 401(k) and 403(b) plans¹. For those serving in a fiduciary capacity for these plans, the level of personal accountability being assumed can be significant and misunderstood.

Excessive fee litigation cases in retirement plans have risen dramatically in frequency and severity and have put pressures on the fiduciary liability insurance market. Since 2020, excessive fee litigation has grown significantly with plaintiffs’ firms filing more than 250 lawsuits. These cases, which generally focus on fees that 401(k) and 403(b) plan participants pay for investment management or administration, are both expensive to defend and to resolve.²

Further, both private and public sector employers have also been subject to litigation from plan participants related to plan investments in environmental, social and governance (ESG)-focused funds. Alarmingly, legal commentators have suggested that “ESG fiduciary misconduct claims in private-sector 401(k)s are expected to rise as ESG becomes more of a political flashpoint.”³

Better Answers and Options are Available Through PEPs and Expert Plan Management

Today’s employers are, in general, very diligent in managing retirement plans. Substantial time and effort is taken to help participants receive value, and ultimately retirement and financial security from the plans. But for virtually all of the estimated 600,000 U.S. employers that sponsor a 401(k) or 403(b) program, this isn’t their core business or competency. Joining a Pooled Employer Plan (PEP) can help.

Following the passage of the SECURE Act in 2019, PEPs are available to deliver customized and comprehensive 401(k) and 403(b) programs. Organizations can leverage the benefits of pooling to deliver an improved program without all the work and risk, as PEPs provide value in three main areas: less work, less risk, and better outcomes for workers and retirees.

1 403(b) plans are utilized by the not-for-profit sector.
2 “Excessive Litigation Over Excessive Plan Fees in 2023”, Chubb
3 “American Airlines Hit With Class Suit Over ESG 401(k) Funds,” Bloomberg Law (June 2, 2023)

The full article, “Fiduciary and Litigation Risk in Today’s 401(k) and 403(b) Plans” was co-authored by Rick Jones, Senior Partner, Head of Aon PEP, and Curt Young, Partner, Operations and Compliance Lead for Aon Pep. Learn more about the Aon PEP here.