InSight

Rising Litigation in 401(k)’s and Efforts to Support Business Owners

Financial Planning Dentist

The landscape of litigation under the Employee Retirement Income Security Act (ERISA) remains highly active, as highlighted by the 48 new excess fee and performance lawsuits filed in 2023. While this is a decrease from the 89 complaints in 2022, it still reflects a sustained period of high litigation activity over the past eight years, with 463 excess fee cases filed.

At InSight, we understand the critical importance of mitigating fiduciary risk and ensuring comprehensive documentation of fiduciary processes for 401(k) plans. Our Corporate Plan Manager Services are designed to help plan sponsors navigate this challenging environment, ensuring that their fiduciary duties are met with the highest standards of care and diligence.

Litigation Trends and Challenges

In 2023, the legal landscape was dominated by significant activity in pending cases, including a record 42 settlements and a surge in motions to dismiss, summary judgments, and appellate rulings. Despite a decrease in new filings, the overall volume of excess fee cases remains high, particularly targeting large retirement plans with assets over $1 billion.

The most common claims involve alleged excessive recordkeeping fees and investment underperformance. Notably, legacy law firms continue to pursue large plans based on purported excessive fees, often using data from Form 5500 filings. However, newer plaintiff firms are introducing novel theories of fiduciary liability, including improper indirect compensation to recordkeepers and imprudent use of plan forfeitures.

InSight’s Proactive Approach

At InSight, our Corporate Plan Manager Services are designed to address these evolving challenges head-on. We provide comprehensive support to ensure that 401(k) plans are managed in accordance with fiduciary best practices, thereby mitigating the risk of litigation.

1. Thorough Documentation and Compliance: We help plan sponsors meticulously document their fiduciary processes, including fee disclosures, investment selection, and monitoring procedures. This ensures that all actions taken are well-documented and compliant with ERISA requirements.

2. Fee Benchmarking and Negotiation: Our team conducts rigorous benchmarking of plan fees against industry standards and negotiates with service providers to secure the most favorable terms. This proactive approach helps demonstrate that plan fiduciaries are leveraging the size of their plans to obtain competitive fees.

3. Investment Performance Monitoring: We provide ongoing monitoring and analysis of plan investments, ensuring that they meet performance expectations and align with the plan’s objectives. This includes regular reviews and adjustments to the investment lineup as needed.

4. Risk Assessment and Mitigation: Our services include comprehensive risk assessments to identify potential areas of fiduciary liability. We work with plan sponsors to implement strategies that mitigate these risks, including the adoption of prudent processes for selecting and monitoring plan investments and service providers.

Staying Ahead of Litigation Trends

The trends in 2023 show a clear focus on large plans and evolving theories of liability. InSight’s Corporate Plan Manager Services are specifically tailored to help plan sponsors stay ahead of these trends by implementing robust fiduciary practices and continuously adapting to new legal challenges.

By partnering with InSight, plan sponsors can be confident that their 401(k) plans are managed with the highest standards of fiduciary excellence. Our proactive approach not only helps mitigate the risk of litigation but also ensures that plan participants receive the best possible outcomes from their retirement plans.

As the frequency of ERISA litigation remains high, it is crucial for plan sponsors to have a trusted partner in managing their fiduciary responsibilities. InSight’s Corporate Plan Manager Services provide the expertise and support needed to navigate this complex landscape, ensuring that 401(k) plans are compliant, well-documented, and positioned to withstand scrutiny.

By leveraging our services, plan sponsors can focus on their core business objectives while we take care of the intricate details of fiduciary management. Together, we can achieve the goal of providing secure and effective retirement plans for employees, backed by a solid foundation of fiduciary excellence.

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