Trends in ERISA Fiduciary Litigation
By Mark Johnson, Ph.D., J.D.


ERISA class action lawsuits alleging high plan administration fees dominated industry news in late 2015 and continuing through 2016. Many recently filed cases question excessive fees, the use ofstable value funds, non-traditional funds, and target date funds, among other issues.


This time period also saw some notable settlements in long-running ERISA lawsuits, including:


• Lockheed Martin Corp., $62 million settlement in July 2015

• Boeing Co., $57 million settlement in November 2015

• Massachusetts Mutual Life Insurance Co., $31 million settlement in June 2016


In March 2015, Ameriprise Financial announced a $27.5 million settlement in an ERISA lawsuit. Fidelity Investments also agreed to a $12 million settlement in 2014.


The Lockheed Martin is the largest ERISA settlement to date. The case was first filed in 2006, the same year as the Boeing case.


In most cases the plan defendant maintained that it was in compliance with ERISA requirements in regard to the reasonableness of expense levels and plan administration practices, but chose to settle the case in order to avoid the risk of further litigation.


ERISA fiduciary liability rules require that fiduciaries act prudently and “solely in the interest of the plan’s participants and beneficiaries.” Plan administrators must provide participants with clear disclosure of fees, expenses, and comparative performance data that allow the participant to make fully informed decisions.


Plan fiduciaries can include plan trustees, plan administrators, and members of a plan's investment committee.


403(b) Plan Lawsuits Increase in 2016


Cornell University, Columbia University, Massachusetts Institute of Technology, New York University, Northwestern University, the University of Southern California, and Yale University have all been named as defendants in a series of ERISA class action lawsuits targeting 403(b) pension plans in 2016.


A 403(b) Tax-Sheltered Annuity (TSA) Plan under ERISA is a form of defined contribution plan that is offered by public schools and certain tax exempt organizations like hospitals, universities, and some churches. The annuities are funded by salary reduction agreements and non-elective employer contributions, according to the IRS.


While every case is different, common allegations revolve around breach of fiduciary duty based on the following:


• Excessive recordkeeping compensation

• Numerous layers of administrative expenses

• Use of multiple record keepers

• Large numbers of investment options that create confusion and add to costs

• Failure to remove under-performing assets from a portfolio

• Restrictions and penalties on participants who wish to withdraw their investment


In a January 2016 report titled “How 403(b) Plans are Wasting Nearly $10 Billion Annually, and What Can Be Done to Fix It,” publisher Aon Hewitt Investment Consulting recommends that funds can improve performance through the following actions:


• Reduce the number of investment options

• Consolidate recordkeepers to reduce costs while improving compliance

• Use the plan’s size to bargain for competitive pricing


According to the Aon Hewitt report, 403(b) plans now hold an estimated $1 trillion in assets. These assets are generally managed in the form of fixed annuities (43 percent), variable annuities (33 percent), and mutual funds (24 percent).


Looking Ahead to 2017


The number of recent ERISA class action lawsuits indicates that 2017 will continue to bring increased risks to plan fiduciaries. The Employee Retirement Income Security Act establishes several fundamental rules for fiduciaries of either pension or employee benefit plans, as described on the web page titled ERISA Fiduciary Liability Facts.


Author Mark Johnson is available to discuss a potential ERISA matter with plaintiff or defense counsel.


December 2016



ABOUT THE AUTHOR: Mark Johnson, J.D., Ph.D. Mark Johnson, Ph.D., J.D., is a highly experienced ERISA expert. As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances.


ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and does not engage in the practice of law.


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Contact ERISA Expert Dr. Mark Johnson


You can reach Dr. Johnson via email or by phone at 817-909-0778. He is available to confidentially discuss a benefits matter.


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