American workers, not trial lawyers, should benefit from Trump’s retirement savings reform

OPINION:

Last week, the Trump administration began delivering on the president’s vision to democratize retirement savings for everyday Americans, with the U.S. Department of Labor releasing a proposed rule to implement President Trump’s executive order freeing 401(k) savers to invest in alternative assets. This move will give more than 90 million working Americans the same diversification options and potential higher returns that have been central to the portfolios of large public pensions and wealthy investors for decades.

Yet this effort is already under fire from a small group of trial lawyers who have greatly profited from the current regulatory regime. This group has brought millions of dollars in lawsuits over alleged violations of the Employee Retirement Income Security Act. In a recent Bloomberg article, longtime ERISA trial lawyer Jerry Schlichter criticized the administration’s move and portrayed himself as a “white knight” for retirement savers. Look one level deeper, and it’s clear Mr. Schlichter’s opposition is all about self-preservation.

Mr. Schlichter, widely regarded as a “pioneer in ERISA litigation,” has led the charge in transforming the somewhat niche field of fiduciary breach lawsuits into a high-stakes billion-dollar industry. Over the past 20 years, his St. Louis-based law firm, Schlichter Bogard LLC, has “created a whole field of litigation” by securing more than $750 million in settlements by alleging breaches of fiduciary duty.

Other ERISA trial lawyers have been honest about their incentives in maintaining the current policy. As one remarked in response to Mr. Trump’s executive order: “I would joke and say that I hope employers add alternative investments, because I have some kids I need to put through college.”

This acknowledgment highlights precisely why ERISA litigation reform is so critical: The promise of diversified, higher-return options risks being derailed by the same litigation playbook that has already enriched the bar at participants’ expense. Without robust safe harbors, Mr. Trump’s executive order risks becoming the next opportunity for “excessive fee” or fiduciary breach lawsuits that would enrich attorneys far more than they reliably benefit participants.

That industry, based on Mr. Schlichter’s model, routinely challenges standard industry practices as ERISA violations. Often, these cases resolve through substantial settlements rather than full trials, with attorneys’ fees often claiming up to one-third of the gross amount, plus litigation expenses, turning what many view as “dubious” challenges into highly lucrative windfalls. Meanwhile, participants often receive only modest per-person recoveries. One study found that the median per-participant award was $67.79, compared with the average attorney fees of $1.59 million. This raises real questions about whom the litigation actually benefits: participants or the lawyers filing cases.

This litigation industry has prioritized quick settlements to the benefit of trial attorneys. Daniel Aronowitz, a longtime critic of this practice and now assistant secretary of the Employee Benefits Security Administration, has called recordkeeping lawsuits the “gateway drug” for excessive fee lawsuits and blasted Mr. Schlichter’s “copycat minions” for stifling innovation and chilling new plan adoptions. He has warned that cases such as Northwestern University’s (where Mr. Schlichter served as counsel) heighten fiduciary risks for higher-cost or active funds, the kind of scrutiny that could now extend to the alternative assets the executive order promotes.

Mr. Aronowitz is no outsider to these issues and brings decades of experience, having underwritten fiduciary liability insurance and repeatedly urging the Labor Department to reclaim authority from plaintiff-driven agendas. His leadership on this issue will ensure that ERISA is no longer an impediment to innovation.

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With the Labor Department’s public comment period now open, we can expect trial lawyers to continue voicing strong opposition to these reforms. Mr. Schlichter’s criticism (from shortly after the executive order was signed) is more about maintaining a status quo that has fueled his and other firms’ multimillion-dollar settlements.

Mr. Aronowitz’s approach will counter the self-enriching incentives, refocusing ERISA on protecting retirement security rather than funding plaintiffs’ bar windfalls. Rather than putting an attorney’s child through college, strong ERISA litigation reforms will protect consumers while helping 401(k) savers better build for their retirement.

The Trump administration’s push offers a real opportunity to democratize access to alternative investments and robust safe harbors that ensure American workers, not trial lawyers gaming the system, benefit from Mr. Trump’s reform.

• Eric Ventimiglia serves as executive director of Pinpoint Policy Institute, a nonpartisan, nonprofit educational organization dedicated to promoting and defending the essential pillars of American prosperity.