401(k) Lawsuits: What Are the Causes and Consequences?

The brief’s key findings are:

• Employers with 401(k)s are required to administer their plans for the “sole benefit” of workers, a standard that has been the subject of substantial litigation.
• Recent lawsuits have focused on excessive fees, although inappropriate investment options and self-dealing are other common reasons for suits.
• Court rulings in these cases often hinge on whether plan fiduciaries follow a “prudent” decisionmaking process, rather than on specific outcomes.
• Perhaps in part to avoid such litigation, 401(k) sponsors have begun to rely more on low-cost index funds and have taken steps to reduce fees.
• At the same time, concerns about litigation could dissuade 401(k) sponsors from offering potentially useful innovations, such as lifetime income options.