Compliance

PSNC 2017: Learning From Litigation

It is not always possible, even for the most carefully run retirement plans, to avoid getting dragged into ERISA litigation, and so having a clear response plan in place is essential.

By John Manganaro editors@plansponsor.com | June 12, 2017

Addressing attendees of the 2017 PLANSPONSOR National Conference last week in Washington, D.C., Jamie Fleckner, a partner with Goodwin Procter LLP, made the frank-but-timely observation that, “in the United States of America today, pretty much anyone can sue anybody for anything.”

“Of course, that doesn’t mean the charges will stick, but it’s an important fact for defined contribution [DC] plan sponsors to remember as the latest wave of Employee Retirement Income Security Act [ERISA] lawsuits continues,” Fleckner observed. There may be some cases filed that have merit, “but there are also many more filed that do not ultimately go anywhere.”

The panel conversation, “Learning From Litigation,” also featured Bradford Huss, director, Trucker Huss APC, and Emily Costin, partner, Alston and Bird LLP. The three long-time ERISA attorneys all agreed that there is just about as much ERISA-focused litigation ongoing today as they have seen at any point in their careers. Huss put the total number of current outstanding lawsuits well above 50, observing that, on average since early 2016, there has been at least one new example of ERISA litigation filed in a U.S. district court each week. There are also now more than a small handful of cases that have been decided, one way or another, and appealed to the circuit courts.

“Each case is unique, but overall we see that investment fees, administration fees and imprudent processes are at the heart of current ERISA litigation trends,” Costin suggested. “Plaintiffs will allege conflicts of interest and imprudence of processes, both for the initial selection of an investment option or service provider and for the ongoing monitoring that a fiduciary has a duty to do.”

Also the concept of self-dealing has become increasingly prevalent—the claim that decisions are not being made for the benefit of plan participants but instead for the financial gain of the plan sponsor. This type of charge is often leveled against the retirement plans being run by investment providers and recordkeeping providers themselves, but non-investment-industry sponsors are also accused of similar conflicts. For example, in one increasingly common approach, the plan sponsors are accused of overpaying for DC plan recordkeeping in order to get a better deal on other services, perhaps other benefits administration or payroll.

As the experts observed, the cases are almost exclusively “lawyer generated,” and that will continue. In other words, it is not even really the participants who are driving the wave of litigation. Rather, there are a growing number of high-powered plaintiffs’ attorneys who see ERISA plans as ripe targets. Costin suggested that these firms have actually not had all that much success so far in terms of winning these suits; decisions have mainly come down against sponsors only in cases where there were clear and pretty egregious conflicts. Unfortunately, many plan sponsors simply move to settle these cases, rather than fight them, either out of fear of losing or simply to get the trouble behind them. 

“These are all lawyer-generated suits … these aren’t participants who just wake up one day and decide to draft a lawsuit making these really complicated arguments,” Fleckner concluded. “The participants are not that sophisticated. They have, in effect, agreed to sign onto this litigation. So for plan sponsors, you cannot let this stuff derail you or stop you from running your plan the way you need to run it for your employees, assuming of course you are making a good faith effort to comply with ERISA. You cannot make decisions based on the fear of getting sued … that’s in itself a fiduciary breach.”

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