A growing number of companies are facing lawsuits from their own employees over 401(k) retirement plans. That according to a new report from the Center for Retirement Research (CRR) at Boston College. The research shows the number of 401(k) lawsuits reached a high of 107 in 2008, at the onset of the Great Recession. After steadily declining to as few as just two lawsuits in 2013, the number grew again to 56 in 2016 and 51 in 2017.
The increase in these mostly class-action lawsuits comes as more Americans are participating in retirement savings programs like 401(k)s. "These lawsuits typically focus on a few different things," says Geoffrey Sanzenbacher, associate director of the CRR. "One is that the investment options offered in the 401(k) had a return rate that was lower than expected, and the company should have known would be lower than expected."
"Employers can also be sued because the plan was simply too expensive, or for 'self-dealing,' which is basically that the plan is acting in its own interests, and not the employees' interests," says Sanzenbacher.
The fallout from all of these 401(k) lawsuits is still unclear, since 60% of the cases analyzed in the CRR report are still pending. Sanzenbacher sees both good and bad impacts. "We have seen the average fees on plans come down over the time period we've seen these lawsuits tick up, maybe because employers are on better guard," he tells KTRH. "But on the other hand, these kinds of lawsuits can discourage employers from offering a 401(k) in the first place because they don't want to get sued, and it could prevent them from offering some kinds of investments that may be useful to people...so certainly I think there is a downside."