401(k) Specialist Issue 2 - 2023 - 17

Shift from DB to DC
Despite being a relatively new law, Malik
said it is amazing to see how much has
changed since ERISA was first enacted in
1974. " Without a doubt, the most consequential
change is the shift from defined
benefit to defined contribution plans as the
norm. "
Malik says this shift changed the state of
retirement affairs, the responsibilities for
plan fiduciaries, and has also shaped everything
seen in the retirement space today.
" I can't understate the impact. The defined
benefit to defined contribution shift is
so consequential that it is perhaps most fairly
analogized to a leap in species-meaning,
what you would see on an evolutionary
chart, " Malik says.
But beyond that fundamental change, the
retirement space has evolved in numerous
other ways that has implications for ERISA
attorneys. A great deal of this has been
fueled by technology.
" For example, questions about electronic
disclosures, plan data, and cybersecurity were
virtually nonexistent for practitioners from
the early days of ERISA through a good
part of the 1990s, " Malik says. " But today's
generation of ERISA lawyers have had to
become familiar with these topics, which is
amazing because it is something that wasn't
even contemplated by the statute itself. "
Taking it one bridge further, Malik
points to cryptocurrency and digital assets.
" This is an area that wasn't even contemplated-and
arguably, not even foreseeable
by anyone other than futurists and time
travelers-and yet today's generation of
ERISA lawyers has to devote considerable
brain power on reconciling these areas with
ERISA and explaining the implications to
our clients. "
Don't Sleep on Cybersecurity
Malik goes so far as to say he thinks
cybersecurity is the most important issue
facing the retirement industry today. Not
because of the risk of hackers attacking
systems, but rather the risk of hacking
people-or what Malik refers to as social
engineering.
" While we've secured the perimeter with
incredible technologies such as antivirus
Scott Mayland
software, sophisticated firewalls, and other
measures like encryption and dual-factor
authentication, we don't have anything close
to the same arsenal to protect ourselves
from social engineering threats, " he says. " To
understand the risk, it might be helpful to
analogize 'old school' hacking as breaking a
window to get in a house and social engineering
attacks as the burglar obtaining the
keys and comfortably walking in the front
door. "
With social engineering attacks, Malik
said the bad actor carries the outward image
of the victim after exploiting any possible
vulnerability-a stale password, an unlocked
computer, or various random facts about a
person that is somehow meaningful when
put together. " This is a risk that affects everyone
but we don't have a good answer yet
on how to deal with it. "
Beyond cybersecurity, for the foreseeable
future Malik said plan fiduciaries
will be dealing with important questions
about ESG and their potential risk given
the constantly shifting legal landscape. " In
addition, there is now a well-developed cottage
industry of plaintiff's lawyers who are
prepared to file litigation for any perceived
misstep, and thus the risk of litigation is
an evergreen concern for plan fiduciaries, "
Malik said.
Spate of Excessive Fee Lawsuits
Oh yes, the lawsuits. Over the past 10-15
years, hundreds of lawsuits have been filed
against 401(k) and 403(b) plan fiduciaries.
The lawsuits have typically alleged that
fiduciaries acted imprudently in selecting
and monitoring funds based on underperformance,
but the more common allegation
was that the funds' fees were just too
high, says Groom's Scott Mayland, who's
practice focuses on the fiduciary responsibility
and prohibited transaction sections
of ERISA.
" The more recent spate of lawsuits filed
in 2022 was interesting because they challenged
the selection of passively managed
target date funds with some of the lowest
fees on the market, and the allegation was
that the funds underperformed because
their asset allocation was too conservative, "
Mayland said. " At this point, some of these
lawsuits have been dismissed, but most of
them are still pending and there could still
be a lengthy appeals process. "
ISSUE 2 2023 | 401kSpecialist.com
17
http://www.401kSpecialist.com
401(k) Specialist Issue 2 - 2023

Table of Contents for the Digital Edition of 401(k) Specialist Issue 2 - 2023
