401(k) Excessive Fee Litigation Spiked to ‘Near Record Pace’ in ’24

The frequency of Employee Retirement Income Security Act excessive fee class action litigation surged by 35% in 2024, with even more ERISA class action cases filed with novel theories against both defined contribution and defined benefit plans. Most of the increased volume took place in the second half of the year, as filings spiked to a near-record pace.

This deluge of case filings follows an 18-month period, starting in January 2023, with a more moderate pace of filings, as plaintiff firms worked on a backlog of cases. Many of the legacy cases have been settled, however, with three consecutive years of record settlements. Plaintiff firms have filled the void with creative new legal theories, including a wave of forfeiture claims against defined contribution plans and new wellness program, excessive fee and Affordable Care Act fraud theories against defined benefit plans and providers.

The following is a summary of the key developments in 2024 ERISA excessive fee and class action litigation.

Frequency Up

After 18 months of a lower frequency of excessive fee case filings starting in January 2023, the number of cases filed surged in the second of 2024 by 35%. Many of the recent cases assert the novel forfeiture fiduciary-breach theory. These 28 new forfeiture cases [with 34 total filed to date] allege that plan fiduciaries breached their duty of loyalty to plan participants by applying forfeited plan assets to future contributions obligations instead of reducing participant contributions.

The following chart shows the increased pace of filings in the second half of 2024. The pace has spiked close to a record pace, as plaintiff firms chase the new forfeiture fiduciary-breach theory of liability.

A key change in 2024 is the increase in filings against defined benefit plans, with the same spike in frequency in the second half of the year. The following chart demonstrates the increase in total class action case filings, including complaints related to pension risk transfers (12 cases against nine plan sponsors), actuarial equivalence (three cases), employee stock ownership programs (five cases) and wellness programs [21 cases].

2024 Lawsuit Trends

The driving factor behind the increase in case filings is the expanded number of law firms, including excessive fee legacy law firms like Capozzi Adler P.C. and Walcheske Luzi LLC, filing forfeiture claims. After the six initial forfeiture cases filed in late 2023 were not dismissed with prejudice (five of the six were filed in California), 28 additional forfeiture lawsuits were filed in 2024. The vast majority—21 cases—were filed in the second half of the year.

For the first time, a significant number of the backlog in prior cases has been settled. The 153 total pending cases (out of 526 cases filed from 2016 through 2024) is the lowest number of pending cases in three years. For example, 90 percent of the record number of cases filed in 2020 have now been settled. This appears to be a factor in freeing up legacy law firms to pursue new cases.

The following chart shows the number of cases filed by plaintiff firms in the last three years. It shows the prolific Capozzi Adler (12 cases) and Walcheske (11 cases) firms continue to drive the higher volume of case filings and how many more new law firms are entering the space.

Plaintiff Law Firm Excess Fee Filings from 2022 to 2024

Smaller plans were targeted in 2024. Whereas the majority of excessive fee cases in 2023 were filed against jumbo plans with at least $1 billion in asset size, many more smaller plans were sued in 2023, including 13 plans with less than $500 million in assets, nine of which have less than $250 million in assets. 

2024 saw a substantial increase in fiduciary breach class actions lawsuits against defined benefit plans, with 12 challenges to pension risk transfers (against nine companies); more fiduciary-breach cases against health plans, with 21 tobacco or vaccine wellness cases; and the first two purported excessive fee lawsuits against health plans (Johnson & Johnson and Wells Fargo). In the last week of December, two class action complaints were filed directly against medical service providers alleging fraud schemes under the Affordable Care Act. This reflects the increased attention to health plans for new fiduciary-breach theories in class action filings.

Considered more holistically, class action fiduciary-breach lawsuits continue to evolve to challenges or objections to plan design, escalating from what had become routine challenges to plan fees and investments. Instead of claims that fiduciaries failed to prudently follow the terms of plan documents, the lawsuits seek to change the design of plan documents. These claims are essentially challenging how plan benefits are designed by plan sponsors, decisions that in the past were considered settlor functions immune from fiduciary responsibilities.

For example, the forfeiture claims are attempts to change plan design—or least limit fiduciary discretion under plan terms—so that forfeited contributions are applied to reduce participant expenses and not future employer contributions. The pension risk transfer claims are attempts to stop plan sponsors from transferring retirement plans to annuities. The actuarial equivalence cases are attempts to change the mortality tables that sponsors use in their plans to calculate alternative annuities choices.

In sum, as plaintiff firms get more creative, we are seeing more challenges to benefit design.

Settlements Hit Another Record

There were a record 53 settlements in 2024, up from 42 in 2023 and 31 in 2022. The total amount of settlements in 2024 for reported cases was $203.3 million. This trails the record $352.8 million in settlements in 2023, but without the outlier $124.6 million settlement in the Ruane, Cuniff & Goldfarb Inc. case [involving a significant percentage of plan assets invested in one volatile biotech stock], the aggregate settlement amount was close to the 2023 total.

The average settlement, however, continued to decline for the third year in a row. The average settlement in 2024 was $4.6 million ($3.2 million without the outlier UnitedHealth settlement of $69 million, a case that involved unique conflicts of interest evidence). Removing the aforementioned outliers from each year, 2024’s average settlement of $3.2 million is far less than the 2023 average of $5.7 million.

We believe this reflects the continuing trend that certain plaintiff law firms are willing to accept early cost-of defense settlements before the expense of full-blown discovery. The record number of 27 settlements at $2 million or less reflects this trend of earlier and lower settlements.

Daniel Aronowitz is the president of Encore Fiduciary, and Karolina Jozwiak is a legal research analyst at Encore Fiduciary.