Right out of the gate in 2016, a
number of Employee Retirement Income Security Act (ERISA) lawsuits were
filed. The pace of litigation gained more momentum throughout 2016.
from the typical excessive fee cases and company stock litigation of
the past, Charles G. Humphrey, Employee Benefits and ERISA counsel at
Fiduciary Plan Governance LLC, who is based in Buffalo, New York, says,
“I think if you look at Bell v. Anthem, White v. Chevron, Ellis v. Fidelity and Johnson v. Fujitsu, I see something I haven’t seen in great volume before—a probing at quality of fiduciary process.”
Rosenberg, Esq., partner at The Wagner Law Group, who is based in
Boston, adds, “The year 2016 saw an expanding panoply of theories for
attacking investment options and other aspects of the administration of
401(k) plans, and more of the same can be expected going forward.”
Humphrey notes, for example, in Bell v. Anthem, Anthem offered a
Vanguard fund charging 4 bps and was called out for not using its
bargaining power to get a similar 2 bps investment. In the Chevron and Fidelity cases stable value fund use as opposed to money market fund use was questioned; a case against Intel filed last year included an allegation of too many nontraditional assets in its target-date fund (TDF) offerings; and the Johnson case challenged the use of custom TDFs.
Ross, partner and head of ERISA litigation practice at Mayer Brown LLP
in Chicago, adds that cases filed in 2016 have also targeted fee
disclosures and arrangements between plans and service providers.
says her firm is seeing a lot of sponsors who make changes being
targeted with lawsuits claiming it must have been wrong before. “These
are not remedial measures, but plan sponsors genuinely trying to improve
their plans. They are improving on a perfectly acceptable arrangement,”
she states. An example of this is the recent lawsuit filed against Starwood Hotels. In it, plaintiffs note that Starwood did reduce its fees, but for five years prior to that, participants paid excessive fees.
Targets of litigation have also changed. Ross notes that in 2016, not only corporate plan sponsors, but university and college retirement plan sponsors were hit
with excessive fee suits. And, while not new to 2016, church plans have
faced lawsuits challenging their non-ERISA status. A split in the
circuits has led to cases being taken up by the U.S. Supreme Court.
Supreme Court’s decision to grant certiorari with respect to the
definition of church plan under ERISA and the Code could produce a
significant increase in litigation against these church-affiliated
organizations if the Supreme Court agrees with the three Circuit Courts
of Appeals that have addressed this issue and concluded that the
long-standing view of the Internal Revenue Service (IRS) was incorrect
and defined benefit plans of these church-affiliated organizations are
not church plans,” says Barry Salkin, of counsel at The Wagner Law
Group, who is based in Boston. NEXT: Drivers of new litigation trends and surge in cases