According to Nancy Ross, partner and head of the Employee Retirement Income Security Act (ERISA) litigation practice at Mayer Brown LLP in Chicago, the last year in litigation has seen a continued shift away employer stock drop cases in favor of excessive fee cases.
Ross notes that these excessive fee cases have started to divide themselves fairly neatly into a few different categories.
“The most active sub-category is probably the lawsuits being filed against financial services providers regarding self-dealing within their own retirement plans,” Ross observes. “During 2017 we saw the district courts react in a fairly open manner to these allegations. Many of the cases, as we have discussed during the year, have avoided various preliminary motions to dismiss. As a result there are cases involving Franklin Templeton, Allianz, BBT, and Deutsche Bank, just to name a few, that will likely move ahead in 2018.”
According to Ross, these proprietary fund lawsuits are viewed by plaintiffs’ firms as “one of the types of excessive fee cases that are likely to get past motions to dismiss.” And so it stands to reason that more—potentially many more—of these lawsuits are on the way.
At a high level, Ross says trends in ERISA litigation tend to be driven by the financial environment.
“When you have a strong stock market, you see employers get attacked for having active management and paying excessive fees,” she explains. “But as the stock market inevitably weakens, you see claims about the failure to offer diversified and defensive lineup. So it’s tough to give employers general guidance about how to protect themselves.”
Ross expects some of the nearly two dozen lawsuits involving 403(b) plans that have emerged in the last several years will move ahead next year: “All but the lawsuit against Penn have escaped preliminary dismissal. The outcomes of these cases could send down some new guidelines on 403(b)s, particularly on the question of whether or not you should have multiple recordkeepers.”
Ross says she is also eager to see how the states’ efforts to offer their own retirement plans may run into ERISA preemption issues. In particular, she will be watching a lawsuit filed to halt the establishment of the Oregon Saves program, which is one of the state-run retirement programs for the private sector which has progressed furthest along. Something else that is important to watch in 2018, Ross says, is the “testing of remedies.”
“Across all of these cases there will be very important procedural issues that could be addressed, and there will be testing of remedies. By this I mean, there will be a testing of what appropriate relief for various allegations and outcomes might be,” Ross says. “If you look at the settlements and decisions that have come down in recent years, we’ve been all over the map in terms of the outcomes. Honestly I don’t know that we could reach anything like uniformity here.”
Ross’ overall assessment is that the litigation environment will indeed remain litigious next year. She says plan advisers and sponsors together are “trying really hard to manage risk in this environment. It’s like the game of Whack-a-Mole trying to manage all the different correlated risks. That’s the time we’re in right now.”
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