Expect More Varied ERISA Litigation in 2017

Aside from traditional allegations of excessive fees and mismanagement of company stock, ERISA litigation in 2016 included challenges to fund types, fiduciary processes and provider arrangements; expect more to come.

By Rebecca Moore | December 22, 2016
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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.

Aside 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.”

Stephen 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.

Nancy 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.   

Ross 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.

“The 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