401k Litigation: How Plan Sponsors & Consultants Can Reduce Risk

Plansponsors & Consultants Can Be Proactive.pngRetirement Plan litigation (401k) hasn't shown any signs of slowing down. 

Meanwhile, excessive fee claims have dominated most of the headlines in these cases. Making it top-of-mind for Defined Contribution (DC) plan sponsors and consultants. Yet, there is one often overlooked aspect in these complaints which plays a crucial factor in these rulings:

Failing to put plan administrative and record keeping services out for competitive bidding on a regular basis.

Here's how to make sure you don't fall into this all-too-common pitfall.  

Don't Become a Headline

We all know that sometimes the best way to learn how to do something, is to see how it shouldn't be done. The following stories are prime examples of the risks associated with an ineffective evaluation process. 

#1. Class-Action Suits 

From Pensions & Investments online last January Oracle was sued by current and former 401k participants, one complaint alleged:

"Oracle plan executives haven't conducted competitive bidding for record keeping in more than 25 years."


#2. Bad Press 

More recently, PLANSPONSOR covered a Chevron case -- which while it was dismissed, included a key complaint by the plaintiffs. They alleged plan fiduciaries failed "to put plan administrative services out for competitive bidding on a regular basis..." (emphasis added).


#3. Falling Below Industry Standards 

While a case brought against plan sponsors doesn't necessarily result in a settlement, like Lockheed $62 Million or Ameriprise $27.5 Million, important non-financial provisions provide vital lessons to be learned about the importance of prudent provider evaluation strategies.

I actually wrote about this in depth in an article last year, highlighting some valuable plan sponsor feedback about recommended frequency to go out to RFP or RFI to evaluate service providers.

The survey showed some surprising responses as more than 1/3 of respondents fell below the industry recommended time frame of every 1-3 years.

As Retirement Plan litigation continues to be a top priority for plan sponsors and consultants, it also presents an opportunity be proactive with a sound strategy to reduce exposure to risk and ensure fiduciary compliance.

Provider Evaluation Strategy Tips

So what can Plan Sponsors and Consultants do? Here are some actionable questions to consider as you build out your provider evaluation strategy:

  1. How often are plan service provider capabilities and fees updated?

  2. Are reusable RFP and RFI templates available for quick deployment to reduce manual tasks and timelines?

  3. Is there an audit log of service provider communication during the RFP process?

  4. How are service provider proposals aggregated for evaluation and comparison? Are you exposing your process to undue risk with Word, Excel and other inefficient products?

See how we can help you drive efficiency and reduce vendor evaluation risk