Plaintiffs’ Lawyers Are Ready to Pounce if Private Equity Pushes Into 401(k) Plan

Lawsuits over fund fees could multiply if expensive private funds enter U.S. retirement accounts

Putting private equity into Americans’ 401(k) accounts could set off a wave of lawsuits from class-action attorneys who specialize in suing companies over excessive retirement-plan fees, lawyers say.

Private-equity firms, which typically manage money for big institutions and the rich, are now knocking at the door of the U.S.’s roughly $12.2 trillion defined-contribution retirement industry. Large 401(k) managers and administrators—Vanguard, BlackRock, Voya Financial and Empower—say they plan to introduce private assets into target-date retirement funds.

To do so, they are joining forces with private-markets fund managers including Apollo Global Management, Blackstone and Blue Owl Capital, which hope to tap a huge new source of asset-management fees.

Supporters of such efforts say they can boost retirement savings by giving 401(k) plans access to huge private markets that were historically limited to institutions and the wealthy. They also say such investments help diversify retirement portfolios as the number of public companies shrinks.

But these new products could be an easy target for lawyers who specialize in suing companies that put pricey funds in their employees’ 401(k) accounts, a type of lawsuit that has proliferated in recent years.

Jerry Schlichter, the lawyer who pioneered 401(k) fee lawsuits nearly two decades ago, believes retirement-plan sponsors will have a tough time proving that private-equity investments are a prudent choice for ordinary savers.

“Sponsors are at serious risk if they choose to put private equity into their plans,” said Schlichter, whose firm, Schlichter Bogard, has secured more than $600 million in settlements in 401(k) fee lawsuits.

“There are lots and lots of issues” with including private equity in 401(k) plans, from high fees—private funds are much more expensive than the index funds that predominate in retirement accounts—to illiquidity, higher leverage and opacity, Schlichter said.

Companies that offer defined-contribution plans are well aware of these issues, which have been barriers to the adoption of private funds in 401(k) plans, people in the industry say. While it is legal to offer private funds in these plans, companies are spooked by potential litigation and so very few do.

That is why the industry wants government help. The Trump administration is expected to issue an executive order aimed at smoothing the adoption of private-markets investments. Many in the industry want it to include some legal protections for employers who offer private-markets exposure in their plans.

But lawyers say an executive order won’t negate the steep fiduciary requirements of the Employee Retirement Income Security Act, which governs retirement plans, or eliminate the many structural issues that they say make private equity a challenging fit for 401(k) savers.

“To say that this is fraught with difficulties doesn’t even quite capture the situation,” said Paul Secunda, a partner at Walcheske & Luzi, one of the most active law firms in bringing 401(k) fee suits.

He said private equity could potentially be a helpful addition to 401(k) plans, but litigation is a “serious practical risk” for the companies that move first.

“Unless you are one of the largest employers and can tolerate a lawsuit that can cost millions of dollars whether you win or lose, this is something to let others do first and see how it plays out,” said Secunda, who estimates he has worked on 60 to 70 lawsuits over 401(k) fees in the past five years.

Suing companies over allegedly high-cost 401(k) investments has become a major business since Schlichter launched the first such case in 2006. An average of 57 such cases have been filed annually since 2016, including 66 last year, according to data from Encore Fiduciary, a fiduciary-liability insurer.

Settlement payouts in these cases totaled $556.5 million in 2023 and 2024, Encore said. Many companies have insurance policies to cover these costs. But because there have been so many lawsuits, insurance is becoming more expensive and limited. Secunda said many companies have to pay settlements themselves.

In May, Intel won a long-running lawsuit brought by a former employee who alleged that the chip maker violated its fiduciary duty by including private equity in its 401(k) plan. While that decision helps establish the legality of putting private-market investments in these plans, it doesn’t grant immunity to companies that do so.

Companies must “proceed with caution,” said Anne Tyler Hall, managing partner at Hall Benefits Law, a firm in Atlanta that advises retirement-plan sponsors on how to reduce their risk of litigation.

But class-action lawyers say the administration’s actions won’t prevent them from bringing suits when a company fails to follow the law. Schlichter said private equity should simply be held to the same standards as other investments, without any legal advantages.

“The very idea that private equity wants a carve-out from the law should be a neon red flag,” he said. “If they need special treatment to protect them from allegations they violated the law, maybe they are not following the law.”

By Chris Cumming and Luis Garcia July 20, 2025

Read online at https://www.wsj.com/articles/plaintiffs-lawyers-are-ready-to-pounce-if-private-equity-pushes-into-401-k-plans-390a3972

Private equity and its undisclosed fees has long been an issue with members of STRS Ohio and other public pensions. This article raises concerns about private retirement plans getting involved with PE investments and potential lawsuits due to high opaque fees and that Wall Street is seeking federal protection from those lawsuits. STRS is involved in PE investments and that’s why we have been complaining about transparency. The hidden fees are problematic. If it’s bad for 401k plans, it’s bad for STRS.