Lawyers Setting the Menu: The Effects of Litigation Risk on Employer-Sponsored Retirement Plans

American households increasingly rely on employer-sponsored defined contribution plans to save for retirement. I show that litigation risk is an important factor that impacts these plans. Using a new database of over 35,000 plans covering more than $5 trillion in assets, I show that employers respond to increased litigation risk by excluding options from plan menus. Reduced choice decreases employees' retirement wealth by up to 14% for mean-variance optimizing investors. Additional results based on observed choices from over 2 million employees show that reduced choice is associated with 3% lower balances on average.