While every large 401(k) plan is a target for a class-action lawsuit over costs, I believe the years of litigation and fee disclosure regulations will exhaust the number of class-action lawsuits, as well as courts taking a more negative view of trying to second-guess what a 401(k) fiduciary will do. I call that Peak 401(k) litigation.
Unlike managing attorneys at law firms, ERISA litigators can be very creative in arguing novel legal theories. The latest attempt is trying to claim that participant data is a plan asset. As fee disclosure regulations have assisted in lowering fees, plan providers have been looking to cross-selling as a way to make more money. Through recent cases, ERISA litigators are trying to argue that participant data is a plan asset. The ERISA litigators are claiming that plan sponsors breach their fiduciary duties of loyalty and prudence when they permit plan service providers to profit from the use of personal information of 401(k) plan participants – for non-plan purposes such as “cross-selling” rollovers and other investment products.
It’s an interesting theory, something I never thought of before. It will be up to the courts to buy that argument.