A Big Change Could Be Coming to Your 401(k) Administration – Center for Retirement Research
Abolishing ‘rules by litigation’ could destroy some protections for workers.
Most people think that their employer’s role in providing a 401(k) stops at selecting the provider, the match rate, and the investment options.
What most workers may not know is that under the law that governs 401(k)s – the Employee Retirement Income Security Act of 1974 (ERISA) – employers must administer plans “for the sole benefit” of participants. This role requires employers to do more than the basics. For example, employers must ensure that fees charged by suppliers are reasonable and investment options are diversified, while avoiding conflicts of interest such as forcing employees to buy company stock. Failure and employers can be sued. In the past, lawsuits were common. But – for better or for worse – that may be changing.
To understand why these changes are important, it’s important to understand that 401(k)s are now the primary way people save for retirement outside of Social Security. Of workers who have a retirement plan, more than 80 percent have a 401(k) and few people save without them. Having a plan with low management costs and reasonable, well-diversified investment options (eg, index funds) ensures that as much money as possible stays in those plans. The ability of employees to sue is one of the ways that programs are kept on track.
You see, the Department of Labor is charged with creating regulations, providing guidance, and enforcing ERISA, that is, making sure 401(k)s are run properly. Historically, the DOL has not done much to regulate or provide guidance, instead, ERISA has often been enforced through litigation. For example, when it comes to the high fees charged by 401(k) providers, the department has not specifically stated what the verifiers must do to ensure that the payments are reasonable, but the plan participant will sue his employer (used to be called) that his 401(k) provider charged high fees. When courts decide a case, they effectively decide what fees are appropriate.
This approach gives the DOL the ability to identify problems as they arise in the real world. But some people, including US Labor Department attorney Jonathan Berry, think the approach could encourage frivolous lawsuits.
He recently commented on the DOL’s pro-employer brief: “[t]submitting his application is part of the Department’s ongoing efforts to stop the management of opportunistic crimes.” Since the DOL may be backing away from a key way to ensure that 401(k)s – including yours – are functioning properly, it’s worth asking: “why now,” and “is this a good idea?” As Figure 1 shows, 401(k) lawsuits have been going on for a long time. The increase in the mid to late 2010s was due to an increase in overpayment cases. The recent increase from 49 cases in 2023 to 69 in 2025 — which appears to be what has angered the DOL — is related to a large increase in cases related to “foreclosures.”
Severance is what happens when an employee leaves their employer before matching contributions are made. That money is returned to the plan and it is now normal and acceptable for it to be used to pay other members of the employer’s plan. The new lawsuits allege that this use does not benefit plan members and benefits employers, reducing their payments. Instead, the plaintiffs argued that the money should go to cover the cost of running the program.
This type of case was very rare until recently. When I wrote about 401(k) lawsuits in 2018, we didn’t mention foreclosure lawsuits. By 2025, there were more than 40 of them. On the foreclosure issue, I can see the DOL’s frustration. Many of the program’s documents clearly state that the current method is one of the ways that asset forfeiture is used. Also, guidance on pensions dating back to before the 401(k) even existed said using forfeitures to pay employer expenses was appropriate.
In 2023, the IRS even proposed a regulation for 401(k)s saying the same thing. These cases seem to be asking for trouble without any obvious benefit to the workers. After all, if employers have to stop using deductibles to pay their share of contributions, they may reduce their matching. As far as foreclosures are concerned, trying to stop these charges is a good idea.
But, in general, I hope the DOL takes a measured approach to its rollbacks. It’s not clear if the forfeiture is different, or if the DOL will go back in other areas. The assistant secretary of labor for the Employee Benefit Security Association (which broadly oversees ERISA), Daniel Arnowitz, also expressed a desire to end “lawsuits by litigation” but without talking about forfeitures specifically. The department should definitely support cases where the loss of employees is obvious. For example, past cases have accused employers of offering expensive “retail” classes instead of taking advantage of “institutional” pricing. In this case, if there was no case, the workers would end up paying a higher amount than what was required.
The department should continue to support any cases that promote financial transparency, especially because they seem to be effective. Finally, the DOL should avoid allowing some investments like crypto to expand into 401(k)s — a goal outlined by President Trump in his 2025 Executive Order — without providing guidance on those (often expensive) costs or supporting lawsuits. The recent period of litigation has been marked by a gradual decline in the fees charged by 401(k) providers to employees, likely due to the litigation.
In short, pushing back against the latest wave of lawsuits seems prudent. But the DOL shouldn’t completely abandon what has, until now, been its primary means of ensuring employers manage 401(k)s responsibly. Quality management of all our retirement savings depends on it.
