The Current State of Retirement Plan Litigation

Panelists at the 2017 PLANADVISER National Conference discuss the state of litigation in the retirement plan industry and lessons learned by lawsuit filings and court decisions.

Thomas E. Clark Jr., a partner in The Wagner Law Group, told attendees of the 2017 PLANADVISER National Conference, Thursday, that litigation in the retirement plan market is strong.


New firms have jumped into the fray, following the model of Schlichter Bogard & Denton, a firm that has been bringing lawsuits against retirement plans and providers for years. “There are a half dozen of these firms filing complaints,” Clark observed.


David Kaleda, a principal at Groom Law Group, Chartered, added that law firms are getting creative—moving down-market and to very large 403(b) plans. “It’s a good way to get lots in recoveries,” he said.


But, Clark said, for smaller plans, the plaintiffs’ bar will realize it has “caught the bumper” and won’t get a payout to compensate for what it pays to litigate. He believes, going forward, small plans will not see much litigation.


From cases that have been filed and decided, there are lessons to be learned. According to Clark, decisions in self-dealing cases are turning into process claims, which say, “You should have done something.” However, this doesn’t mean a plan sponsor or defendants have violated the Employee Retirement Income Security Act (ERISA).


Kaleda noted that Fidelity was dismissed from the Verizon excessive fee case. “Service providers are targets of suits because they have the deepest pockets. But they are usually not fiduciaries and not responsible for alleged claims,” he said. “Recordkeepers usually make sure they are not fiduciaries, but the plaintiffs’ bar [has] tried to make cases showing they are.”


For example, Kaleda said, in the Delta case citing Fidelity and Financial Engines, where the plan sponsor offered a managed account program Fidelity sponsors, the court said Fidelity did not act as a fiduciary when it set its compensation structure for a chosen plan sponsor service. Kaleda explained that providers can get into trouble making recommendations that create compensation for themselves, but setting a fee structure for services that plan sponsors agree on is not a violation of a fiduciary function.


Kaleda said decisions in other lawsuits have shown that plan sponsors and advisers just need to show there were fiduciary processes in place for selecting and monitoring investments and providers.


Regarding the cases challenging the church plan status of entities’ pension plans, Kaleda said the Supreme Court decision was helpful in ruling that a church plan need not be sponsored by a church, but may be sponsored by a principle purpose organization. However, organizations still have to worry about litigation because the high court did not spell out what is a “principle purpose organization,” what is a “church,” and what does it mean to be affiliated with a church. He added that plaintiffs are amending complaints to show the entities in question were not principle purpose organizations or church-affiliated.


There have been settlements in some of these cases, Kaleda noted, but the defendants have refused to say they are subject to ERISA—they are agreeing to additional funding of pension plans to make participants happy.


Clark believes the decisive answers to church plan litigation questions will have to come from Congress.