401k Plans “Very Concerned” About Being Sued: Report

A majority of 401k sponsors, big and small, are concerned about being sued, according to new research from Cerulli Associates.

Most of the lawsuits have so far targeted massive plans, but even small plans are feeling the heat. And it’s having an effect on investment strategy, as many plans consider a more passive approach amid scrutiny of fees.

From 401kSpecialist:

More than half of 401k plan sponsors express concern over potential lawsuits, new research from Cerulli Associates finds.


Survey data shows that smaller 401k plan sponsors are also taking notice of this increasingly litigious environment, as reflected by the nearly one-quarter of small plan sponsors (less than $100 million in 401k assets) who describe themselves as “very concerned” about potential litigation.

In particular, fee-related lawsuits have been a pervasive theme in the 401k plan market in 2016, further underscoring the 401k industry’s intense focus on reducing plan-related expenses. A significant consequence of this focus on fees is an increased interest in passive investing.

Plan sponsor survey results show that the top two reasons for which 401k plan sponsors choose to offer passive (indexed) options on the plan menu are because of “an advisor or consultant recommendation” or because they “believe cost is the most important factor.”

Several defined contribution investment only (DCIO) asset managers tell Cerulli that the demand for passive products is driven, primarily, by the desire to reduce overall plan costs.

“As advisors become increasingly fee conscious, some view passive options as a way to drive down overall plan expenses, which in turn demonstrates their value to the plan,” Jessica Sclafani, associate director at Cerulli, said in a statement.

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