A new lawsuit against recordkeeper Empower raises serious questions about how retirement plan providers use participant data for cross-selling purposes. The allegations, if proven true, reveal troubling practices that should prompt every plan sponsor to examine their own recordkeeper relationships more closely.
According to Carol Buckmann of law firm Cohen & Buckmann, who recently analyzed the case, the lawsuit centers on whether Empower crossed the line from participant education into inappropriate marketing. The complaint alleges that Empower used confidential participant information obtained through plan administration to target workers for sales of overpriced IRA products. Participants claim they weren’t told about higher fees, conflicts of interest, or that the “personalized” investment services were largely limited to Empower’s own products.
The timing of these allegations is particularly noteworthy. Federal regulators have already flagged cross-selling concerns, with the SEC fining multiple providers—including Empower—for securities law violations in their marketing practices. Yet this lawsuit ventures into largely uncharted legal territory, arguing that participant data should be treated as a plan asset and that aggressive cross-selling violates ERISA’s fiduciary standards.
While the legal precedent remains murky, the potential scope of this case is massive. The complaint targets what could be a huge class of plans using Empower’s services. Even more concerning for plan sponsors, the lawsuit alleges that plan fiduciaries breached their own duties by failing to monitor and control their recordkeeper’s cross-selling activities. This claim attempts to close off Empower’s potential “we’re not fiduciaries” defense by arguing that third parties can still be liable for participating in fiduciary breaches.
The practical implications extend far beyond Empower. Many recordkeepers engage in various forms of cross-selling, and some even include provisions in their standard service agreements asking plan sponsors to authorize the use of participant data for marketing purposes. These practices raise uncomfortable questions about whether recordkeepers are truly serving participants’ best interests or viewing them primarily as sales prospects.
For plan sponsors, this lawsuit serves as a wake-up call about monitoring responsibilities they may not have fully considered. Just as fiduciaries must watch how providers handle plan float income, they should also understand and potentially restrict their recordkeeper’s cross-selling practices. The key is distinguishing between legitimate participant education and sales pitches that may not serve participants’ best interests.
Plan sponsors should start by reviewing their service agreements to understand what cross-selling activities they’ve authorized, either explicitly or by omission. Consider requiring that recordkeepers avoid discussing additional products unless participants specifically request information. Ask for comprehensive compensation disclosures that include all revenue streams from the plan relationship, and request regular reports on cross-selling income to evaluate whether total compensation remains reasonable.
Perhaps most importantly, plan sponsors should engage directly with their recordkeepers about sales practices and monitoring procedures. Do they review sales calls with participants? How do they ensure sales staff stays within appropriate boundaries? What safeguards exist to prevent conflicts of interest from influencing participant interactions?
The outcome of this lawsuit remains uncertain, but the allegations highlight risks that extend well beyond Empower. Plan sponsors who proactively address these issues now can better protect both their participants and themselves from potential future liability. In an environment where recordkeeper relationships are increasingly complex, fiduciary vigilance isn’t just good practice; it’s a requirement.
