Significant changes continue to reshape the retirement planning ecosystem, with monumental effects that impact both plan sponsors and plan participants alike.
It’s been a whirlwind of new elements, from SECURE 2.0 provisions continuing to roll out yearly since 2023, an uptick of ERISA-based litigation making headlines, defined contribution limits expected to increase to $24,500 by 2026 according to Milliman’s forecast, to the recent movement of private equity space looking to enter 401(k)s. 2025 is only halfway in, yet it has proven to be a transformative period with many complexities.
If these factors were not enough to shake up the sector, the current administration is encouraging cryptocurrency in retirement plans as well as weighing options to open the $9 trillion U.S. retirement market to private equity. These converging factors and potential changes should act as strong signals for plan sponsors to revisit their risk management strategies.
The Retirement Industry Crossroads
To gain a better understanding of the risk management practices that plan sponsors should implement, it is essential to have a clear comprehension of all the puzzle pieces scattered across the landscape.
For starters, the recent Supreme Court decision in Cunningham v. Cornell has profoundly reshaped the ERISA litigation landscape by simplifying the plaintiffs’ path to court, now requiring only allegations of a prohibited transaction to move forward. This pivotal ruling is expected to significantly increase the volume and intensity of ERISA-related lawsuits.
Last year, plaintiffs filed 136 ERISA-related lawsuits, and this trend shows no signs of slowing down.
This situation arises in the context of an already highly litigious environment. Last year, plaintiffs filed 136 ERISA-related lawsuits, and this trend shows no signs of slowing down. Recently, high-profile companies such as JPMorgan, Trader Joe’s, HP, and Home Depot have faced lawsuits alleging some degrees of fiduciary breaches, underscoring the scrutiny and vulnerabilities faced by plan sponsors today.
In the not-so-distant background, the SECURE 2.0 legislation is driving transformations in retirement plans, keeping plan sponsors on their toes. This year alone, employers were mandated to automatically enroll eligible employees into retirement plans and increase contribution rates by at least 1% annually. Additionally, the legislation introduced expanded withdrawal options, permitting annual withdrawals of up to $2,500 for long-term care insurance premiums, and significantly increased the catch-up contributions for participants aged 60-63, up to $11,250 or 150% of the standard limit.
The wave of change that SECURE 2.0 enforces continues into 2026, introducing mandatory Roth catch-up contributions and an increase in contribution limits by $1,000, according to the aforementioned Milliman’s forecast. While beneficial to employees under employer-sponsored plans, these shifts increase administrative responsibilities and the potential for compliance missteps, thereby increasing the likelihood of fiduciary breaches.
Additionally, as the current administration considers an executive order that would clear a path for private equity to enter mainstream retirement plans, plan sponsors need to tread carefully. This structural evolution can be beneficial for long-term savers. However, plan sponsors must ensure compliance with changing plan design requirements and educate participants who may not fully understand the long-term implications of new investment options or plan features. The margin for error continues to grow.
Must-Know Risk Management Practices
As the administration of employer-sponsored plans grows more intricate, plan sponsors are vulnerable to both major and minor errors. Common pitfalls include the misuse of forfeitures, insufficient oversight, inadequate documentation, and improper expense allocations—all frequent sources of ERISA litigation. Increased contribution limits compound these risks as errors become more financially and legally impactful. Effective management and record-keeping are more critical than ever in this evolving regulatory environment.
Clear and regular communication with plan participants regarding regulatory changes and new contribution limits is an essential part of any risk management plan.
The role of risk management frameworks will only continue to be crucial in this complex setting. Regular compliance audits, comprehensive governance structures, and clearly defined fiduciary responsibilities are essential. An additional powerful tool is fiduciary liability insurance. Designed to protect both employee benefit plan decision-makers and their employers, it offers defense coverage and funds settlements or judgments for liabilities under ERISA, as well as allegations related to administrative mistakes in managing internal employee benefit plans.
While ERISA law does not mandate fiduciary liability insurance, given the puzzling elements currently at play, it is highly recommended that plan sponsors err on the side of caution and protect themselves and the company from potential claims related to plan management.
Clear and regular communication with plan participants regarding regulatory changes and new contribution limits is an essential part of any risk management plan. Additionally, targeted training and workshops for fiduciaries and administrators can ensure comprehensive understanding and adherence to compliance requirements. Leveraging advanced technologies can further automate and streamline management processes, improving employee retirement preparedness and significantly reducing fiduciary risks.
The Transformative Nature of 401(k)s
As regulatory shifts, increased litigation, and emerging investment options continue to reshape the 401(k) landscape, the importance of proactive fiduciary risk management grows more critical. Plan sponsors must prioritize comprehensive compliance strategies, ongoing fiduciary education, and robust governance practices to ensure effective management of their responsibilities. Integrating fiduciary liability insurance further strengthens defenses, protecting both plan sponsors and participants against the evolving risks of plan management.
Ultimately, a proactive and informed approach will determine how sponsors successfully navigate these challenges in securing the financial future of their participants.
SEE ALSO:
• 401(k) Forfeiture Lawsuits and SECURE 2.0 Compliance with Richard Clarke
• Advisor Attitudes Toward 3(16) Fiduciary Outsourcing Explored in New Study
• Vast Majority of 401(k)s Have a ‘Red Flag’ Fiduciary or Regulatory Violation: Study
Richard Clarke is Chief Insurance Officer at Colonial Surety Company. As an insurance industry veteran with more than three decades of experience, Richard currently leads strategy and operations at Colonial Surety, a recognized leading provider of fiduciary liability insurance for small and mid-sized businesses (SMBs).