ERISA Litigation

The extent to which a participant in a tax-qualified defined benefit plan has standing to sue the plan’s fiduciaries for mismanagement of plan assets has long been unclear. The argument against standing is that the participant has not suffered any injury because the participant would receive the same benefit from the plan regardless of the outcome of the lawsuit.
Continue Reading Supreme Court Closes Door to Participant Challenges to Defined Benefit Plan Investments

After a few years of decline, litigation involving 401(k) plans “has surged again recently,” according to a study published by the Center for Retirement Research at Boston College.  This is likely not news to 401(k) sponsors and service providers, who are confronted with this reality on a near daily basis.  However, the study is a fascinating read, in part because it chronicles many cases brought since 2006, but also because it discusses the consequences of all this litigation—both the good and the not-so-good.

Complaints filed by participants of 401(k) plans against their plan fiduciaries over the past ten years follow a pattern.  Section 401(k) plan litigation exploded during the recession in 2008, with many allegations targeting funds holding employer stock whose value plummeted.  The number of lawsuits peaked at 107 in 2008, and 2009 remains second on the list for number of 401(k) lawsuits filed over the past 12 years.

Section 401(k) litigation tapered off during the first few years of this decade, with the Supreme Court’s 2014 Dudenhoeffer v. Fifth Third Bancorp decision delivering a devastating blow to the so-called “stock drop” cases.[1]

Although the Court agreed with the Sixth Circuit that employer stock ownership plan (ESOP) fiduciaries are not entitled to a special “presumption of prudence,” its discussion of the difficulty such allegations faced in meeting the pleading standard led to many dismissals.

But starting around 2015, the study finds, 401(k) litigation began to surge again.  The more recent cases focus on “excessive fees” paid either for actively managed investment funds or for record-keeping and other administrative services.  There has been a corresponding shift in who is sued: record-keepers, third-party administrators, and other plan service providers are increasingly named as defendants, in addition to or instead of the employees or fiduciary committees of plan sponsors.  The plaintiffs in many of these “excessive fees” cases probe the complicated—and sometimes opaque—fee structures between plan service providers such as record-keepers and investment advisors for what plaintiffs believe to be hidden kickbacks.Continue Reading ERISA Litigation Surging – Focus on Fees

The Fourth Circuit recently held that participants in a defined benefit plan lacked standing under Article III of the United States Constitution to challenge investment decisions made by the plan’s fiduciaries.  David v. Alphin, No. 11-2181 (4th Cir. Jan. 14, 2013).  The plan at issue was overfunded and the participants had not failed to receive any benefit to which they were entitled under the plan.  The Fourth Circuit held that the plaintiffs had not experienced an injury that would be redressed by a favorable outcome in the litigation.  Without such an injury, the plaintiffs did not have constitutional standing under Article III.
Continue Reading Participants Lack Standing to Challenge Defined Benefit Plan Investment Decisions

Private equity and other investment fund managers can exhale (at least a little bit) following a recent court ruling that investment funds are not liable for the ERISA obligations of their portfolio companies.  The ruling expressly rejects a 2007 Pension Benefit Guaranty Corporation (“PBGC”) letter ruling and contradicts an earlier court decision that supported the PBGC’s position that a private equity fund could be liable for the pension liabilities of one of its portfolio companies.  While the new ruling by no means settles the issue, investment fund managers should welcome this development.
Continue Reading Investment Funds Not Liable for Pension Plans of Portfolio Companies, Court Rules

When an employee benefit plan is amended in a way an employer anticipates could be controversial, an employer might seek a declaratory judgment that the amendment complies with ERISA.  Generally, a declaratory judgment action will preclude later challenges by plan participants.  However, a recent decision by the Third Circuit demonstrates…
Continue Reading Employer’s Declaratory Judgment Action Dismissed in Favor of Later Suit by Union