Retirement Plans: Is Change Worth It?

Feb 26, 2026

Plan sponsors have more plan design and service options to consider than ever. Lifetime income possibilities. Private equity investments. Emergency savings provisions. Expanded financial education and advisory services. Indeed, the emerging possibilities for helping employees make the most of their savings are many. At the end of the day, though, what are the right changes? As thousands of retirement plan sponsors ponder this question, another question crashes in behind it: is change worth the risks? Read on for insights into why many plan sponsors avoid even the most carefully researched innovations.

401k Plan Design—and Litigation Too

At Plan Sponsor, Amber Brestowski sums up many encouraging trends in 401k plan design and points out that participation and savings are on the rise. Autoenrollment has generated proven results, while efforts to offer a “range of financial planning solutions,” and a holistic approach to financial wellness are on the rise too. Explorations into how to incorporate annuities into defined contribution plans point toward new possibilities as well. But even as more choices become available, many sponsors are reluctant to make changes, given the significant risks posed by ERISA litigation. In fact, as James Van Bramer explains at Plan Adviser, “Litigation risks have suppressed plan providers and sponsors’ innovation….”

Specifically reporting on an American Benefits Council survey of plan sponsors and providers, Van Bramer shares these insights into the impact of litigation risks on plan sponsor choice making:

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.

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.

Who Benefits From ERISA Litigation?

Given the surge of ERISA litigation against retirement plans in recent years, it’s important to understand that by and large, litigation settlements “on behalf of participants” are not always what they seem from a glance at the headlines. For example, at the National Association of Plan Advisors, Paul Mulholland reports that ERISA defense attorneys from Davis &Harman analyzed 27 ERISA settlements in 2025 and found:

Plaintiff law firm compensation often dwarfs the average compensation of participants in ERISA class action lawsuits….According to the survey, average plaintiffs’ attorneys’ fees were $1.59 million, while the average per-participant award was $892.19.

The average per-participant award of $892.19 “was dramatically skewed by a single outlier awarding over $16,000 to individual class members. If that outlier were removed, the average for 2025 would be $291.67”.

The lowest per-participant award was for Dukes v. AmerisourceBergen. In that case, the average award was $5.85 for the class members, though the “plaintiffs’ attorneys were awarded $208,333.33 in fees (1/3rd of the total gross settlement),” according to the survey.

Although plaintiff lawyers may argue that ERISA litigation benefits participants, Nevin Adams, a 401k champion and retirement industry thought leader, underscores: “If anyone thinks the participants are getting more out of this than the law firms, they’re nuts,” and with insurance costs rising, Adams also notes that “every plan in America is paying for this…,” even smaller plans: “We’re all paying for it.”

ERISA litigation is understandably a major concern for plan sponsors, but there is some hope on the horizon. Groom Law Group notes for example: “Settlement values in fee cases seems to be declining, signaling a recalibration of litigation strategies on both sides.” Additionally, though forfeiture litigation has opened up new challenges for plan sponsors, successful motions to dismiss may stem the tide.

Is Protection Really Necessary for Plan Sponsors?

Under the high standards of the Employee Retirement Income Security Act of 1974 (aka ERISA), plan sponsors can be held personally liable for oversights that impact the participant’s savings. Even if you outsource services, you retain fiduciary responsibilities: afterall, you made the outsourcing decisions, right? That’s how ERISA works. Specific examples of what you can be held personally accountable (aka liable) for as a fiduciary include:

Decisions: Do you have the right advisor, and investment options?
Cost control: Are the plan fees reasonable and services solid?
Compliance: Do operations adhere to the plan document, and government regulations?

For protection, even the most diligent plan sponsors need fiduciary liability insurance. Defense against an ERISA allegation typically costs upwards of $600—per hour. That adds up fast, and absent fiduciary liability insurance, defense costs are an out-of-pocket expense.

To ensure retirement plan sponsors from businesses of every size can protect themselves with fiduciary liability insurance, Colonial Surety Company provides affordable coverage: the annual premium is less than just one hour of ERISA defense if disaster strikes—and we even include cyber liability insurance at no extra cost.

For a few dollars a day, Colonial Surety Company’s Fiduciary+Cyber Liability Insurance bundle arms retirement plan sponsors with:

$1,000,000 for Defense and Penalties if you are faced with alleged or actual breaches of fiduciary duty.
Cybersecurity Coverage for the business and plan, which addresses Department of Labor recommendations, and includes expert response services to curtail damage after an incident.

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