Originally published at nationalreview.com February 19, 2026.
Retirement in America was supposed to rest on two pillars: Social Security and the 401(k)’s promise of ownership, choice, and empowerment. Now, the first pillar is cracking, and the second is being slowly hollowed out. With Social Security projected to reach insolvency within the next decade — forcing Congress to confront painful choices on raising taxes, cutting benefits, or both — Americans will depend more than ever on their private retirement savings. Instead of strengthening that lifeline, however, the legal system underlying 401(k) accounts has been slowly captured by trial attorneys, transforming a vehicle of financial independence into a regime of judicial paternalism.
Originally published at nationalreview.com February 19, 2026.
More than 650,000 Americans now hold at least $1 million in their 401(k) accounts, a statistic cited as proof that the system is working. Yet a comfortable retirement in the United States is proving increasingly precarious. Nearly half of American households have no retirement savings, and almost half aren’t saving enough to maintain their standard of living in their twilight years, which may be set to last longer as life expectancies increase.
The 401(k) money pot channels trillions of dollars into employer-sponsored plans governed by the Employee Retirement Income Security Act of 1974 (ERISA). Today, ERISA’s most potent force is the plaintiffs’ bar. Plan sponsors no longer ask which investments serve participants best; rather, they ask which investments are least likely to trigger discovery. Recent academic research by Michael Gropper, analyzing more than 35,000 defined-contribution plans covering over $5 trillion in assets, finds that higher ERISA litigation risk leads employers to reduce investment menu diversity, resulting in lower expected retirement balances for participants. This misplaced focus harms savers while boosting the profits of a small number of specialized law firms.
The outcome was predictable: Anything “unconventional” was pushed out. Private equity was labeled too risky, private credit too opaque, and tangible assets too complex. In the name of uniformity, trial attorneys imposed a de facto asset allocation across the American retirement system without ever being held accountable for the results. The logic that workers could not be trusted with their own savings and that standardization must prevail served only one interest: the institutions and law firms collecting contingency fees.
Within this system, employees are herded into a narrow range of public equities and bonds through uniform target-date funds, engineered to withstand litigation. Risk is synchronized, and innovation is punished. Millions of Americans end up holding practically identical portfolios, finding themselves at the mercy of perpetually low returns. While no statute expressly mandates investment uniformity, the threat of litigation has ensured it.
Such financial paternalism began with the Social Security Act of 1935, which redefined retirement as a government-mandated life stage. It embedded the idea that Americans could not be trusted to provide for themselves. What followed was a cascade of policy interventions in the private retirement market.
The days of widespread defined-benefit pensions are gone, having collapsed under their own weight by the 1970s. Congress responded by tightening oversight. ERISA made pensions “safer.” Then the Revenue Act of 1978 and subsequent IRS guidance created the 401(k), shifting investment risk onto workers while keeping capital locked away for decades.
In 2006, the law firm Schlichter Bogard filed the first excessive-fee lawsuits against 401(k) plans, alleging that employers had violated ERISA by allowing plan participants to buy investment funds with too-high management fees. The eventual case, Tussey v. ABB, launched a lucrative litigation business model, opening the door for a wave of opportunistic class actions alleging “imprudence” with the benefit of hindsight. Defense costs soared, as settlements became rational even when no retirement plan participant could be shown to have suffered harm.
In turn, the Supreme Court amplified this model. In Tibble v. Edison and Hughes v. Northwestern, fiduciary duty was expanded into perpetual legal exposure. Offering a broad menu of options ceased to be a defense. Employers quickly learned the lesson that deviation from financial orthodoxy invites litigation.
This judicial paternalism isn’t occurring in isolation. Across the country, political actors are attempting to repurpose retirement savings for ideological agendas that are unrelated to participants’ outcomes. The Washington Post editorial board recently reminded New York City leaders that public pension funds exist to maximize returns, not play politics.
The irony is stark, since paternalism has given wealthy investors near-exclusive access to the best investment opportunities. Public pension funds and university endowments, insulated from relentless ERISA litigation, routinely allocate 20 to 30 percent of portfolios to private markets. These investments capture diversification, illiquidity premiums, and superior long-term returns. Two classes of retirement savers have thus emerged: one trusted with real markets, the other confined to a legally sanitized imitation.
The cost to everyday employees is measured in relinquished wealth. Over the 24 years ending in 2024, private equity outperformed public stocks by more than four percentage points annually, even after fees, exceeding the S&P 500 by roughly five points each year. For a worker earning $50,000 who consistently saves the maximum in a 401(k), being denied access to those returns means forfeiting more than $200,000 in retirement wealth. Yet this opportunity cost is never disclosed by companies or regulators. No quarterly statement reports the wealth sacrificed at the altar of the plaintiffs’ bar.
These days, private markets dominate capital formation. Companies stay private for longer due to burdensome IPO regulations and reams of mandatory disclosures. The financing of infrastructure, energy, and credit increasingly happens outside public exchanges. Excluding retirement savers from these markets starves American retirees of financial inclusivity.
The public understands this. New national polling shows overwhelming support for allowing private-market investments — private equity, private credit, real estate, and infrastructure — inside 401(k) plans. Over 65 percent of voters believe that workers should have the same investment opportunities regardless of whether they have a pension or a 401(k).
Support for these reforms is not an attack on the sanctity of retirement savings. Rather, it is an indictment of a regime that incentivizes plan sponsors to design portfolios around litigation avoidance rather than participant outcomes. The foregone conclusion is foregone returns. Workers are pressed to save more and work longer as a result.
So long as ERISA litigation remains a low-risk, high-reward enterprise for trial attorneys, retirement policy will be written in courtrooms. Employers will continue excluding viable investment options. Most financial innovations will remain inaccessible to the proletariat.
President Trump’s executive order to democratize retirement is a step in the right direction. It should be paired with congressional tort-reform proposals that are needed to restore proportionality to ERISA’s statutory language, along with the Department of Labor’s rule-making to provide a safe harbor for plan sponsors’ asset allocation. Fiduciary prudence should be judged based on the reasonableness of decisions made at the time, not the performance of investments looking backward.
Until then, 401(k) owners will continue to be the victims of judicial paternalism. Only such free-market reforms can rescue them.