While it might be sacrosanct to even mention that lawsuits might actually be benefiting defined contribution plan participants like the recent Pension & Investments editorial suggested, it’s hard to deny the effect it has on plan governance. In fact, 64% of large plan consultants polled by Pimco said that mitigating lawsuits is a top concern.
Jerome Schlichter, the chief architect of these lawsuits suggested that fees have been lowered by .20% overall in an interview in the inaugural issue of NAPA Net Magazine. If true, that means that participants in 401k and 403b plans will save an estimated $16 billion in 2017 alone answering some critics who claim that very little of the money recovered in lawsuits make their way to the individual investors.
As he looked at the situation, Schlichter was struck not just by how unfairly DC participants were being treated but also why the DOL had not taken action. Fees and practices that were common 10 years ago would make most people cringe today. And with all due consideration to fee disclosure rules 408b2 and 404a5 promulgated by the DOL in 2012, most 401k and 403b plan sponsors find the documents to be difficult if not impossible to decipher.
Have lawsuits kept some companies from creating a corporate retirement plan? State initiatives requiring employers to offer savings plans at work will more than make up for that problem. And there’s little evidence that lawsuits have caused companies to terminate their plans.
But the lawsuits have placed a bright light on fees rather than value which can cause its own issues as we lose focus on why retirement plans are actually offered in the first place – to help people prepare for retirement. Like the DOL fiduciary rule, 401k and 403b lawsuits get a lot of mainstream press coverage which may motivate senior management to get engaged with their organizations retirement plan. Hopefully, the reaction will be to improve the plan, not gut or cut them.
