401(k)s and the Courts in 2025

Plan forfeiture court decisions, Loper Bright’s use and potential DOL guidance shifts are all on the table, according to ERISA experts.

2025 may be an active year for both attorneys and plan fiduciaries working with employer-sponsored retirement plans.

First, there are 401(k)-related cases already in motion that may start to be clarified by court decisions, including the raft of plan forfeiture and pension risk transfer lawsuits that hit this year. Then there is the likely use and effects of the Loper Bright decision, which overturned decades of judicial deference to federal agencies. And that’s all before potential moves by the new administration and Congress regarding the Department of Labor’s Retirement Security Rule; environment, social and governance investing guidance; and the use of cryptocurrency in defined contribution plans.

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Plan Forfeiture Cases

In the 12 months through October, there were more than 20 cases filed in various federal district courts against plan sponsors alleging the misuse of retirement plan forfeiture assets, according to Daniel Aronowitz, president of Encore Fiduciary, which offers fiduciary liability insurance to plan administrators.

“Plaintiff law firms have figured out that the easiest way around the pleading standard [or rules that govern how parties present their claims] that we’ve been fighting about for years is to just use the magic words: plan forfeitures,” Aronowitz told an audience at PLANADVISER 360 in Scottsdale, Arizona, on November 12.

Aronowitz said that before these cases, fiduciaries had been assuming that plan forfeitures were a settlor, not fiduciary function—meaning their setup was not held to a fiduciary standard. The recent complaints are challenging that by questioning the use of forfeitures, even in some instances where their use was clearly laid out in the plan setup.

Drew Oringer, a partner in and general counsel at Wagner Law Group, says the plaintiffs’ bar is attacking plan forfeitures to see if courts will engage on the question of whether there is a fiduciary claim to how a forfeiture was set up by a firm, even if the plan documentation was clear.

“There are a lot of plans in the market that have the kind of provisions that are potentially open to question under the law,” Oringer says. “The question is going to be: Which courts look at this and say, ‘There is no fiduciary claim at all,’ ‘There is a fiduciary claim, but we don’t see it as a viable one,’ or, ’There’s a fiduciary claim, and we see it as a viable one’? … What the plaintiffs’ lawyers want here is to see a significant number of courts putting it into that last bucket.”

If district, and then circuit, courts were to find viable fiduciary claims, then plan fiduciaries will likely start to settle the cases, rather than go through costly legal battles, Oringer says. In turn, the market might then start to adjust, with plan fiduciaries being “less discretionary” in how the plan is teed up to use plan forfeitures.

If, on the other hand, the cases are dismissed at the circuit level, then plan sponsors will likely “leave their plans as they have been for decades,” he says.

Aronowitz expressed the view that, if it was less costly for plan sponsors to go to trial in such cases, he believes they would be more likely to fight the charges, win and tamp down further suits from the plaintiffs’ bar.

Pension Risk Transfer Litigation

Aronowitz also pointed to a raft of pension risk transfer cases to be worked through that target plan sponsors doing PRTs with Athene-backed annuities, which the complaints allege are not safe long-term, guaranteed-income options.

Athene Holding Ltd. has not been named as a defendant in those cases, and the Apollo-backed firm, the largest seller of retail annuities in the U.S., has vehemently denied the claims.

“I don’t think there is standing in those cases,” Aronowitz said. “But it’s a potentially new issue [for plan sponsors] as to whether you can only go to the safest annuities on the market or what those even are … it remains unclear at the moment.”

The DOL, for its part, reviewed the rules around pension risk transfers, known as IB 95-1, in 2024. While it decided not to offer any amendments or additional guidance, it did not rule out doing so in the future.

Loper Bright

A widely covered U.S. Supreme Court decision made earlier this year is also likely to play a role in ERISA-related cases in 2025. On June 28, the Supreme Court issued a decision in Loper Bright Enterprises v. Raimondo that overturned the precedent set by the 1984 ruling in Chevron v. Natural Resources Defense Council Inc. That so-called Chevron doctrine had called on courts to defer to federal agencies’ interpretations of federal law when deciding cases, including those involving the DOL and the IRS.

Due to Loper Bright, the courts no longer need to defer, and they can rule on the merits of the case as they see them. Experts say that may embolden plaintiffs’ attorneys to bring complaints against plan fiduciaries. But it may also be used by defendants to plead their case directly to the court, as opposed to assuming deference to regulations, notes Stephanie Gutwein, a partner in Faegre Drinker Biddle & Reath LLP.

“You are definitely going to start seeing Loper Bright be used,” Gutwein says. “We have clients where it’s on the table, and we’re discussing it in many client counseling situations.”

As district courts rule on cases, it may make plan administration more difficult for large, multi-state employers who will need to negotiate disparate rulings, Gutwein notes.

Gutwein and colleague Joelle Groshek, an associate at Faegre Drinker, recently wrote about a case that showed potential hurdles to using Loper Bright to overturn past cases. In Cogdell v. Reliance Standard Life Insurance Co., a district court applied Loper Bright and another Supreme Court ruling, Corner Post Inc., v. Board of Governors of the Federal Reserve System, to reject a defendant’s attempt to argue that a regulation was invalid.

The result of that case is pending circuit review. But Groshek says it shows a potentially high bar in using Loper Bright for benefit disputes that are not, on their face, going after the regulations themselves. These types of everyday benefits cases differ, she notes, from when complaints are being filed directly against federal regulations—such as the DOL’s fiduciary rule that has been stayed by two Texas courts.

“Unless a regulation gets taken out altogether, you are likely going to see some inconsistent decisions,” Groshek says.

Trump Administration

Finally, ERISA experts believe there may be relevant changes as early as next year resulting from the 2024 election results. Lawyers from Lathrop GPM point to three regulatory areas to watch.

First, they are expecting that “changes to the definition of fiduciary investment advice are likely to be shelved by the new administration, as the defense of rules issued in 2024 is unlikely to continue,” according to a write-up led by Allie Itami, a partner in Lathrop GPM’s business transactions group.

The second area is related to ESG-related investment rules for retirement plans. The firm expects guidance to switch back to the prior Trump administration’s “pecuniary factors” that must be prioritized over any other considerations.

Third, employee stock ownership plans may not see long-anticipated regulation regarding “adequate consideration”—the pricing of the shares in ESOP plans—which can be difficult to gauge due to the small market for such shares.

“Although a proposal was sent to [the Office of Management and Budget], finalizing a regulation may not be high priority for a de-regulatory administration,” the attorneys wrote.

There are, of course, other plan litigation issues that may emerge in 2025 that only the plaintiffs’ attorneys are yet aware of, points out Wagner Law’s Oringer.

“It’s hard to say what the next big thing will be, because it’s a question of what the plaintiffs’ lawyers come up with,” Oringer says. “They’ve shown themselves to be very creative in the past in coming up with areas they believe may lead to settlements.”

Tracking the Evolution of PEPs

Pooled employer plans have gained traction in their nearly four years of existence, and their use cases are evolving beyond an initial target of small plan startups.

Retirement benefits are often cited as an important talent and retention tool for employers. But many small businesses lack the funds and resources to sponsor a traditional savings account, such as a 401(k).

Enter pooled employer plans, or PEPs. Established via the Setting Every Community Up for Retirement Act of 2019 and first allowed in 2021, PEPs allow multiple employers to join one plan, ideally resulting in lower costs, fewer administrative tasks and reduced fiduciary burdens for the employers. Nearly five years after their inception, they have started to find their footing in the marketplace, according to recent data and interviews with market watchers.

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As an example, one of the first movers on PEPs, Aon, has more than 90 employers providing 401(k) and 403(b) benefits to more than 70,000 workers through PEPs, as of August, up from 70 employers and 50,000 employees it reported near the same time last year.

Meanwhile, providers such as The Standard and Ascensus have reported well more than $1 billion in PEP assets, and a number of new PEPs have been launched in 2024 by retirement plan advisories including the Alera Group, Hub International Ltd. and Strategic Retirement Partners. But while the place of PEPs in the retirement plan market seems clear, their future role in the market may be different from the Department of Labor’s original intention of reaching “small unrelated employers.”

The State of PEPs

The 2019 passage of the SECURE Act and the introduction of PEPs was the first time since the Employee Retirement Income Security Act of 1974 that the fiduciary obligation of a plan sponsor could be narrowed, says Dorothy Lank, a partner in the KLB Benefits Law Group.

“That’s a huge opportunity for employers,” Lank says. “Anything that reduces the fiduciary burden is helpful.”

Since their inception, PEPs have seen particular traction in the small business market, says David Kirchner, a principal in the benefits consulting group at Ropes & Gray LLP. But it has become clear that PEPs are not a one-size-fits-all proposition, and market differentiations are starting to play out. For example, some PEPs focus on setting up a first retirement plan for employers who have never offered one, while others require minimums of 100 to 200 participants.

The latter is perhaps the ideal prospect for a PEP, says Phil Senderowitz, a managing director at Strategic Retirement Partners who recently helped launch a new PEP. He says that, initially, people thought PEPs would be the easiest route for startup plans, but they are actually not a good solution for very small startups (such as those with three or four people) because of the recordkeeper costs.

“The true no-brainer is a plan that is on the cusp of needing to have an audit, so now 100 to 110 participants and growing,” Senderowitz says. “If you have reasonable balances, you can probably get some cost savings and you can avoid the burden of having the individual audit, which can be costly.”

Somewhat surprisingly, larger plans—ranging from $25 to $30 million—are also interested in PEPs because they do not want to worry about fiduciary responsibilities on a day-to-day basis, Senderowitz says.

Kirchner says PEPs that do well are generally those that understand their roles and responsibilities, have agreements with the participating employers that clearly outline those roles, have a strong onboarding process for employers and give those clients information about their process for vetting the various players they are hiring, like recordkeepers.

One of the early knocks against PEPs was that they are “sold, not bought,” says Ted Schmelzle, assistant vice president of retirement plan services at The Standard, which has roughly $1.6 billion of its assets attributable to PEPs. But employers are now starting to understand PEPs and ask for them, he adds.

“If you don’t have that PEP option in your briefcase, I think you’re going to be at a disadvantage,” Schmelzle says.

The Challenges

While PEPs have seen success, there are still growing pains.

“There really hasn’t been any guidance besides SECURE 1.0 and 2.0 on how PEPs are supposed to operate,” says Jack Eckart, a senior benefits consultant and Kirchner’s colleague at Ropes & Gray. “There’s still confusion over what exact roles pooled plan providers should play and where their responsibility falls compared to recordkeepers and investment advisers.”

Eckart explains that the PPP, recordkeeper, and investment adviser are all service providers within a PEP, and some PEPs have confusion among those providers as to who is responsible for certain items.

Separately, many advisers expected PEPs to revolutionize how much work they would have, Senderowitz says, but “just because a plan goes into a pooled employer plan doesn’t mean you can wash your hands of it.”

The biggest challenge PEP providers face right now is the education process, says Rick Jones, a senior partner in Aon’s retirement practice.

“There are over 700,000 individual 401(k) plans in the U.S. today, covering about 70 million private sector workers,” Jones says. “Having the necessary conversations to enable 700,000 of those plans to transfer into a PEP structure is not trivial.”

Moving forward, it will also be important to make sure employers continue to realize why they joined the PEP in the first place and what it gets them, Schmelzle says. PEPs are not a cost play, he says: What you get is the fiduciary and the administrative outsourcing—and that comes at a cost.

The Evolution

As PEPs move into their next phase, Jones says platforms more robust in both size and scale will be built to benefit savers and investors.

“With size and scale brings better purchasing power, which will benefit the whole system,” he says.

More specialized PEPs will also come to market, Senderowitz says. Some may develop with a minimum requirement of at least 200 participants or an average balance minimum. That does not necessarily mean employers of the same industry or type of company will pool together. But he expects the combination of, for example, 10 similar plans, each with $100 million, to get the pricing of a $1 billion plan.

Not all PEPs will survive, however; some may become unwound, leading to consolidation, according to Senderowitz. Smaller practitioners that formed their own PEP and did not get a lot of traction or participating employers, for example, may see recordkeepers raise prices, forcing them to move into larger PEPs.

“We’re still in the very early stages of what PEPs are going to look like for the long term,” Senderowitz says.

Correction: this version fixes terminology to cite the role of pooled plan providers. 

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