Fear of Litigation Impacts DC Plan Services, Investments
One in four respondents told the American Benefits Council they decided against providing more benefits to plan participants out of concern of facing lawsuits.
Litigation risks have suppressed plan providers and sponsors’ innovation, according to a recent survey by the American Benefits Council, an organization that advocates on behalf of employers.
According to the survey, 89% of defined contribution plan sponsors and providers surveyed indicated that litigation risks are “very significant” or “somewhat significant” when they consider improving their services or changing their investment options.
Additionally, one-quarter of respondents indicated they decided against providing more benefits to plan participants out of concern of facing litigation. More than 43% chose not to offer lifetime income options, citing the same concerns.
Litigation can include, for defined benefit plan sponsors, cases such as those related to pension risk transfers, with recent filings involving insurer Athene Annuity and Life Co. Two PRT cases involving Athene were recently dismissed, but one was allowed to proceed. In another pending case, filed in September, retirees sued IBM and its independent fiduciary partner, State Street Global Advisors, over their selection of insurer Prudential Insurance Co. of America.
Additionally, nearly 29% of plan sponsors surveyed said they have opted not to provide participants services or investment options primarily because similar plans chose not to do so, meaning such a comparison could be used against their companies in litigation.
Daniel Aronowitz, the recently confirmed head of the Employee Benefits Security Administration, which is responsible for enforcing the Employee Retirement Income Security Act, testified earlier this year that he plans to streamline retirement plan oversight by reducing litigation. Employer groups lauded Aronowitz following his nomination and his subsequent confirmation.
The American Benefits Council’s survey, conducted in September, included 119 responses by plan sponsors and providers and was prepared by lawyers from Davis & Harman LLP, which often represents plan sponsors in ERISA complaints.