A proposed class action lawsuit filed against Empower last month highlights the importance for 401(k) plan fiduciaries to carefully negotiate their services agreements with recordkeepers and other services providers. The lawsuit alleges that Empower took advantage of its position as the 401(k) plans' recordkeeper by sharing participants' confidential financial data with an affiliate. The Empower affiliate then allegedly used questionable sales tactics to target participants with large account balances to pressure them into rolling over their funds to an investment platform with high fees and underwhelming returns. At this early stage, the court has yet to rule on the lawsuit and it is unknown whether the lawsuit has merit.
Interestingly, this lawsuit does not include any 401(k) plans as co-defendants. However, this is the second lawsuit alleging Empower misused 401(k) participant data filed this year following an earlier lawsuit involving Swiss Re's 401(k) plan.
Even without a ruling by the court or any employer plan fiduciaries being implicated, this new lawsuit highlights some important fiduciary considerations:
- Plan fiduciaries should understand the services their 401(k) plan recordkeeper is providing in its capacity as recordkeeper and any ancillary "non-plan" services it intends to provide.
- Plan fiduciaries should understand how their recordkeeper is compensated for any ancillary "non-plan" services, especially if those services are "free."
- Plan fiduciaries should understand how their 401(k) plan's recordkeeper can utilize plan and participant data.
- Plan fiduciaries should negotiate to restrict the recordkeeper's use of plan and participant data for non-plan purposes to the extent the recordkeeper's use of the data will not benefit participants.
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