'Largely Unpredictable' Which Clients Could be Sued by Participants

Jamie Fleckner, partner in Goodwin Procter’s Litigation Department and chair of its ERISA Litigation Practice, has defended employers in a wide array of complex commercial litigation, with a focus on financial services and products, including investment management.

Beyond employee Retirement Income Security Act (ERISA) suits, he regularly litigates class and derivative actions under the Investment Company Act of 1940, the Securities Exchange Act of 1934, and related federal and state laws.

Even with all that experience Fleckner says he’s downright impressed by the current flow of recent lawsuits, settlements and court decisions in the defined contribution (DC) retirement planning arena.

“I have seen a number of suits filed over the last four months by a wide range of plaintiffs’ firms,” he tells PLANADVISER, “including firms that have not filed many ERISA fee suits in the last few years. I understand that these firms are continuing their marketing efforts looking for additional plan participants to come forward to join litigation, so I don’t see the pace slowing in the near future, unfortunately.”

Fleckner feels the Supreme Court’s decision last year in Tibble v. Edison has emboldened some of these firms to increase the pace with which they are bringing suits. Their motivation is understandable given the huge potential fees that can be collected after a large DC plan settlement. For example, attorneys for plaintiffs in Tussey v. ABB this year collected some $14 million in total in fees and other cost recoupments.

Still, “the message I would give to plan sponsors is to try to remain calm, and not act rashly,” Fleckner says. Keeping in mind the fiduciary fundamentals will go a long way towards keeping a plan safe from suit. Especially important is timely fielding and responding to participants’ concerns—it’s only after a participant feels spurned in one way or another that he or she will be receptive to the uncomfortable prospect of suing their plan sponsor, and by extension their employer.

NEXT: Largely ‘unpredictable’ who will be sued  

Fleckner warns there is “a good amount of unpredictability as to who will be subject to these suits.”

“There is no panacea in terms of plan design that I have seen that would avoid litigation,” he adds. “Even plans with fees that would appear to be objectively very low and that utilize a large amount of passive funds have found themselves subject to suit.” 

This has in fact already happened in 2016 with the filing of  Bell v. Anthem. On page 15 of the complaint one can see an exhibit of the “imprudent” funds at question in this suit—most called out by name are provided by Vanguard, a firm known for transparency and affordability, and are actually quite cheap from an industry-wide perspective, below 25 bps in annual fees. One fund cited has just a 4 bps annual fee, but according to the compliant an otherwise identical 2 bps version could have been obtained by an investor with the size and sophistication of the Anthem plan. Therefore an alleged breach occurred when Anthem continued offering the 4 bps version.

“As to advisers, if they are acting in a fiduciary capacity, they need to be mindful of their fiduciary obligations,” Fleckner concludes. “One court has held that a fiduciary that removed an investment option for fear of being sued if the investment option remained in the plan was, by that act, breaching its fiduciary duties and potentially liable for damages when the investment achieved outsized returns after it was removed.”

The court in that case held that fiduciaries who manage a plan just to minimize their own litigation risk are acting in their own interests and not in the interests of plan participants. “So advisers who act as fiduciaries need to be sure that they are properly discharging their duties to plan participants, rather than trying to minimize their own exposure,” he concludes.