In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, takes a look at President Trump’s recent Executive Order designed to expand the investment options available in 401(k) and other defined-contribution retirement plans, and considers the Order’s potential implications for ERISA liability and insurance. I would like to thank Sarah for allowing me to publish her article as a guest post on this site. I welcome guest post contributions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Sarah’s article.
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On August 7, 2025, the President signed an Executive Order (EO) to “allow 401(k) investors to access alternative assets [including 401(k)s] for better returns and diversification.” In anticipation of the EO, asset managers had previously announced offering 401(k) targeted funds that include private equity investments. Empower, an employer benefits administration, indicated in May that it would begin to provide private asset investments in some workplace accounts later this year. According to the Investment Company Institute, defined contribution plans, like 401(k)s, held $12.4 trillion in assets at the end of 2024, representing a tremendous potential opportunity for PE.
However, will expanding the appetite for employee retirement fund investments into PE lead to an increase in ERISA-related litigation? And, as a result, will fiduciary liability insurance underwriters have increased exposure to litigation scrutinizing plan administrators’ investment in private assets?
As D&O Diary readers may recall, there have been previous waves of excessive fee litigation targeting large employer-sponsored 401(k) plans. Between 2015 and 2020, hundreds of excessive fee cases were filed, with more than 30 claims settling for more than $10 million. Given the higher fees and lower transparency that may accompany PE investment, is a new wave of potential litigation forming offshore?
The following discusses the EO, Fiduciary Liability Coverage, ERISA, PE-specific exposure, and whether the recent dismissal of plan participants’ case against Siemens can be used as a bellwether for plan administrators reinvesting certain 401(k) funds into PE.
Executive Order
The EO instructs the Labor Department (DOL) and the Securities and Exchange Commission (SEC) to facilitate access and provide guidance to employers and plan administrators on including investments in 401(k) plans. The EO further espouses that alternative assets, such as PE, real estate, and digital assets, “offer competitive returns and diversification benefits.” As D&O underwriters may be aware, coverage is available to protect employers and administrators who invest employee retirement funds from allegations related to the investments in those funds.
Fiduciary Liability Coverage
Fiduciary liability insurance covers claims arising from the mismanagement of employee benefit plans, including allegations of breaches of fiduciary duty under ERISA, errors in plan administration, improper investment oversight, and failure to disclose plan information. It typically pays for legal defense costs, settlements, and judgments related to fiduciary responsibilities and is often offered as additional coverage in modular management liability policies.
However, fiduciary liability insurance often does not cover intentional misconduct, criminal acts, or fraudulent behavior once fully adjudicated, meaning defense expenses until that point are covered. Fiduciary liability coverage also may exclude the actual benefits owed to plan participants and civil penalties under certain ERISA provisions, unless coverage is granted by endorsement. With a brief understanding of fiduciary liability coverage, it may be helpful to review what ERISA is and how the EO may increase exposure to fiduciary liability policies.
ERISA and Excessive Fees
ERISA, or the Employee Retirement Income Security Act of 1974, is a federal law that sets minimum standards for retirement and health benefit plans in private industry, including 401(k) plans. ERISA governs how 401(k) plans must be structured, managed, and overseen. Plan sponsors and administrators (often employers or financial managers) are fiduciaries under ERISA. Plan administrators act solely in the interest of plan participants and beneficiaries. ERISA also requires that fiduciaries evaluate the prudence of adding new asset classes (e.g., private equity or crypto) to 401(k) plans. Thus, with the EO paving the way for PE investments, ERISA still requires plan fiduciaries to assess whether they are appropriate for average retirement savers, including the impact of investment fees on the plan coffers.
In this vein, it is important to recall that PE’s standard fee structure is a 2% annual management fee plus 20% of deal profits. Over four-fifths of funds set profit share at 20% (carried interest). There are also expenses such as transaction fees, portfolio-company fees, or legal and consulting costs, which are typically added on top of the “2-and-20” fee model. If the PE fee structure varies significantly from that of mutual fund and exchange-traded investments, there may be plan participant scrutiny under ERISA and excessive fee allegations.
The mid to late 2010s excessive fee litigation alleged that plan sponsors and fiduciaries were liable under ERISA for failing to adequately negotiate and/or monitor the fees charged by plan service providers (fund managers, administrators, and record-keepers) consistent with their fiduciary obligations under ERISA.
As fiduciary liability underwriters may recall, excessive fee lawsuits were difficult to dismiss, with only one-third of cases being dismissed during initial motion practice. When a lawsuit survives motions to dismiss and summary judgment, particularly because investment decisions by plan administrators may be considered a question of fact, expenses increase.
Will opening 401(k)s to private asset exposure result in a new wave of ERISA-based litigation? The two cases discussed below are considered along with the potential impact, if any, on 401(k) administrators that invest retirement funds with PE.
Edison and Siemens
In Tibble v. Edison Int’l (Tibble), plaintiff beneficiaries of the Edison 401(k) Savings Plan sued Plan fiduciaries to recover damages for alleged losses suffered because of alleged breaches of fiduciary duties. The beneficiaries claimed violations related to mutual funds added to the Plan in 1999 and mutual funds added to the Plan in 2002, specifically that administrators offer higher-priced retail-class mutual funds as Plan investments, when materially identical lower-priced institutional-class mutual funds were available.
A unanimous Supreme Court vacated the Ninth Circuit’s decision that the complaint regarding the 1999 funds was untimely. The Supreme Court instead held that fiduciaries have a continuing duty to regularly monitor plan investments and remove imprudent ones. But are PE investments imprudent?
As previously discussed, PEs may have a higher fee structure than existing plan investments. However, if returns from PE are stronger than mutual funds or ETFs, don’t plan administrators, pursuant to Tibble, also have to monitor and make prudent investment decisions?
Perhaps the recent dismissal of a lawsuit by the District Court in New Jersey brought by a Siemens’ employee may support plan administrators looking to reinvest certain contributions in PE.
Specifically, the District Court found that a Siemens employee’s claim that the company mismanaged retirement plan funds by using forfeited employer contributions (money left behind when employees leave before fully vesting) did not violate ERISA. Notably, the Court found that Siemens acted within the plan’s rules and didn’t misuse the funds for personal gain. So, if 401(k) plan documents disclose alternative asset investment, including PE, and plan administrators do not enrich themselves improperly, will liability and potential exposure for violating ERISA decrease?
Conclusion
It remains to be seen whether the EO, directing the DOL and SEC to create a framework for 401(k) plans to invest in PE, will result in a flood of plan administrators reinvesting plan capital into the private asset market. However, given the history and impact of excessive fees cases brought under ERISA, insurers offering fiduciary liability coverage may want to take note of the potential exposure that may come from reinvesting retirement plans into PE.
The views expressed in this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This article is not affiliated with her company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.