“Stop Blaming the Victim”

If confirmed to run Employee Benefits Security Administration, one of Aronowitz’s main responsibilities would be to administer and enforce the Employee Retirement Income Security Act (ERISA), a law that sets basic standards for retirement funds and pension plans to protect Americans’ savings. When employers or financiers mismanage retirement funds, they can be sued under ERISA either by the agency or the retirees themselves in class action cases.

Though it’s flown under the radar, Aronowitz laid out detailed plans for this critical federal office in a 2020 white paper called “Exposing Excessive Fee Litigation,” frequently cited by defense counsel for pension fund managers, including the defendants in the Cornell case.

The white paper lays out a blueprint for keeping retirees from challenging the high fees cutting into their savings — by keeping lawsuits out of the courts and rewriting regulation. “We have seen nothing to suggest that plan participants think their plan fees are too high,” Aronowitz wrote.

In a trove of public writings spanning several years on his company’s blog, the Fid Guru, Aronowitz has made his views clear about a host of other policy issues governed by the agency. In particular, he would like to see the scope of ERISA interpreted as narrowly as possible and enforced infrequently.

“Stop blaming the victim” is how he describes his view of retiree lawsuits against fund managers: “If there is a retirement plan fee problem in America, the process is backwards in that the victim is being blamed.”

It’s for this reason that Aronowitz has been especially hostile to lawsuits challenging excessive fees in 401(k)s and other retirement savings plans. These fees have grown in recent years as fund managers invest retirees’ savings in major financial institutions, sometimes even allowing Wall Street bankers to directly control the funds at a steep markup.

Aronowitz and other industry actors say there has been a recent tidal wave of such excessive fee litigation, cutting into employers’ business costs — even though these lawsuits have been brought for decades.

“Nothing in this so-called ‘white paper’ supports the assertion of a ‘dramatic rise’ in fee lawsuits,” one plaintiffs’ attorney association wrote in an amicus brief in the Cornell case, pushing back on Aronowitz’s claims in his “Exposing Excessive Fee Litigation” report.

Still, for retirement financiers, the litigation costs stack up. Between 2015 and 2020, employers  settled this type of litigation for a total of over $1 billion, along with an estimated $330 million in legal fees. If defendants were covered by fiduciary insurance, insurers like Aronowitz’s firm would have footed the bill.

Ted Siedle, a former Securities and Exchange Commission attorney who investigates retirement plan abuses, noted that without checks on fund managers’ fees, retirees’ costs will add up.

“Excessive fees, over a thirty-year period of time, will reduce your 401(k) balance by 50 percent,” said Siedle. “That’s why it’s so important that these fees be monitored and reasonable.” The litigation that Aronowitz opposes, he said, is an important deterrent to keep fees low.

As the head of Employee Benefits Security Administration, Aronowitz would be responsible for enforcing other retirement fund rules. Under the Biden administration, for example, the agency issued a “junk fee” rule that cracked down on financial advisors steering clients to investments in which the advisors have a financial stake, even if the moves weren’t in the best interest of retirees.

Aronowitz opposed the rule as “a good example . . . [of] overreach” in a blog post called “The Overreaction to the End of Chevron Deference,” in which he argued agencies don’t have constitutional authority to make rules at all. Regulators finalized the financial-advisor rule last year, but a legal challenge against it brought by the financial services industry is currently on hold in the notoriously right-wing Texas Fifth Circuit Court of Appeals.

“You’d Have to Be a Damn Fool”

Another critical area overseen by the Employee Benefits Security Administration is the threat of private equity tapping into the $12 trillion Americans have in 401(k) plans.

Over the last two decades, public pension funds have heavily invested in private equity, investments that charge retirees high fees and strip businesses for parts while failing to deliver adequate returns. As a result, many public workers’ retirement funds have been left ravaged. But thanks to potential restrictions in ERISA — which does not cover public pension funds — employer-sponsored defined-contribution plans like 401(k)s have largely steered clear of private equity, despite years of Wall Street lobbying.

Technically 401(k) stewards are already allowed to invest in private equity. Under the first Trump administration, the Employee Benefits Security Administration issued a letter explicitly giving permission to invest in “alternative” assets like private equity in some cases. The Biden administration’s Labor Department urged caution in its own guidance on private equity in retirement savings but stopped short of reversing the Trump-era policy.

But a major roadblock remains: the threat of excessive-fee lawsuits. Private equity funds charge investors exorbitant fees, which can be an order of magnitude higher than fees charged by mutual funds and other more traditional investments. These sky-high commissions could put 401(k) managers at risk of being sued by retirees for squandering retirement savings.

“They’ve been free to invest in private equity for eight years now,” Siedle explained. “They’re just not doing it — because you’d have to be a damn fool to do it.”

Asked at a recent industry symposium if private equity would tap into 401(k)s, Edmund Murphy III, CEO of the retirement services behemoth Empower, said, “What needs to happen first is you need litigation reform.”

This could soon happen if, as retirement czar, Aronowitz follows through with his desire to raise the bar for excessive-fee lawsuits.

Aronowitz has also advocated for retirees funneling their savings into private equity, saying those who disagree are “naïve and uninformed.”

Private equity, he argued in a 2023 blog post, “increases diversification and adds potential for higher returns,” echoing industry arguments that private equity is the “highest performing” asset class. Such claims are undermined by evidence showing these assets deliver no better pension fund returns than traditional investments.

“Even if that were true, which it is not,” said Siedle of Aronowitz’s claims, “you’d have to find me a plan sponsor who understands private equity fee structures, which they don’t.”

Much of Aronowitz’s wish list would require congressional action. But experts say he can still wield significant power to damage retirement savings if confirmed.

As an insurance executive, he’s been arguing for years that the Department of Labor should play a larger role in stopping retirees’ class-action lawsuits against pension managers, calling the agency “missing in action.” To do so, Aronowitz has proposed a new “specialized” court system just for ERISA lawsuits, modeled on specialized state business courts that typically rule more favorably for corporate defendants.

“DOL needs to intervene in these lawsuits,” Aronowitz wrote in September.

If confirmed, he could have the chance to do so.