Defending the Indefensible

In recent years class action lawsuits have been brought against corporate and university Defined Contribution (DC) pension plans for alleged violations of their fiduciary duties under the Employee Retirement Income Security Act (ERISA). Standards in DC plans have often been low in terms of selection, monitoring, and removal of investment options in the plan among many other issues. First, we outline how to properly design a defined contribution plan that avoids most alleged fiduciary breaches and thus minimizes the likelihood of ERISA litigation in addition to optimizing plan participants’ investment outcomes. Second, with regard to the ongoing ERISA litigation, we discuss several conceptual and practical claims frequently made by defense experts that are inconsistent with investment theory and practice. Defense experts are generally held to a lower standard than plaintiff experts and can use misplaced anecdotes, conceptual errors, and violations of best practices criteria. By identifying such claims, we hope to improve common practice in the best interest of plan participants.