Data and Research

Advisers and Clients Slow Innovation to Prevent Litigation

The defined contribution retirement plan market saw an unprecedented number of lawsuits brought against plan sponsors and their providers in 2016, according to Cerulli Associates. 

By John Manganaro editors@assetinternational.com | December 06, 2016
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A new survey report from Cerulli Associates examines how the unprecedented number of lawsuits being filed against 401(k) and other defined contribution (DC) retirement plan sponsors and providers have impacted the pace of innovation.

Cerulli finds more than half of plan sponsors express serious concern over potential litigation—and it’s not just mega-sized plans feeling vulnerable. Cerulli's survey data shows that smaller plan sponsors are also taking notice of the “increasingly litigious litigation environment,” as reflected by the nearly one-quarter of small plan sponsors (less than $100 million in assets) who describe themselves as “very concerned” about potential litigation.

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

Direct polling of plan sponsors shows that the top two reasons for which 401(k) plan sponsors choose to offer passive or indexed options on the plan menu are because of “an adviser or consultant recommendation” or because they “believe cost is the most important factor.” In addition to this, 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 advisers 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,” explains Jessica Sclafani, associate director at Cerulli.

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