The furious legal wrangling over the Florida vote in the presidential election might indirectly spill over into the pension arena. Because it again demonstrates the litigious nature of so many aspects of American society, it could make companies more willing to adopt a new form of 401(k) plan proposed by R. Theodore Benna and others.
The litigation over the voting throws additional doubt over the solidity of the laws and regulations by which institutions operate. Instead of providing clear guidelines and protection for those who follow them, nowadays laws too often seem to serve only as a point of ambiguity from which an aggrieved party can begin an argument.
Under these conditions, the new proposal by Mr. Benna, father of the 401(k) plan in the 1980s and now president of 401(k) Association, and a similar proposal by Schwab Retirement Plan Services, look appealing and deserve study by sponsors, participants, vendors and Washington authorities.
As they have moved to 401(k)s, companies avoided the long-term pension liabilities of defined benefit plans, taking on a smaller, more manageable obligation while turning over to employees the investment risk.
But as recent legal cases have shown, companies still bear liability for their selection and oversight of the suppliers of the 401(k) investment options. That liability potentially could be huge, as indicated, for example, in the SBC Communications Inc. case. Litigation over investment and other oversight could grow if more lawyers - some emboldened by courtroom victories in tobacco, breast implant and asbestos issues - set their sights on the big sums of money in 401(k) assets.
Mr. Benna's proposal would relieve companies of much, if not all, of that oversight liability by putting it on to the 401(k) vendors. Plan sponsors would select a number of service providers, each with their own arrays of investments, and allow participants to choose one of the vendors. Sponsors would make few decisions, limiting their fiduciary liability.
How soon, if ever, such a change would be allowed is anyone's guess. Both Mr. Benna and Schwab executives have approached the Department of Labor, the Securities and Exchange Commission and members of Congress about changing the law to implement their ideas.
Given the ever-growing level of litigiousness in the country, sponsors may welcome the chance to offload more of their fiduciary liability. But they might regret losing the companies' identification with the 401(k) plans. The 401(k) is, after all, a benefit companies use as an incentive to lure and keep employees in an increasingly competitive labor market. Whether the relief of some more liability is worth the loss of branding is a tradeoff sponsors would have to consider.
With the potential rise of 401(k) fiduciary litigation, some sponsors might even long for traditional defined benefit plans. Yes, these plans imposed a big liability in terms of investment risks and potential for needing big contributions. But that liability might prove more appealing in the long run than the big uncertainties of the potential for 401(k) litigation.