At the Intersection of the NFL Draft, ERISA, Divorce, Venue and Spousal Benefits
Is there a more hyped sporting event with less substance than the NFL Draft? Does everyone on the internet drive traffic to their sites by linking to the draft if at all possible? Well, of course the answer to both questions is yes, and so I too will link a post to the NFL Draft.
How am I going to do that? By taking advantage of the fact that Judge Woodlock, in the United States District Court for the District of Massachusetts, just issued an order on venue and QDROs in ERISA litigation that is not only must reading as a tutorial on a number of ERISA issues, but that also concerns benefits due to a deceased former professional football player’s ex-wife under the NFL’s player retirement plan.
The ruling addresses in detail a number of issues that are dear to my heart, both because they come up so frequently and also because they present subtly complicated issues. First, he discusses in detail the standards governing proper venue of a claim for benefits under ERISA, and in particular the statutory language allowing venue to lie in any district where a plan can be found. In the view of plaintiffs’ lawyers, that allows venue to exist anywhere in the country that the plan administrator or the plan itself might be subject to jurisdiction under a minimum contacts test, while defense lawyers typically assert it must have a more limited effect. Judge Woodlock provides a detailed analysis of the issue, before adopting – as has consistently been done in this District but not always in others – a broad interpretation of the scope of venue under that provision. He then also provides a detailed analysis of the question of when venue should be transferred in such a case, giving great weight to the plaintiff’s choice of venue, even when the only real reason for picking that venue may have been that plaintiff’s counsel – and not the plaintiff or the defendant – is sited there. I would highly recommend the opinion for a tutorial on these issues.
But then he addresses one of the oddest issues, I think, in ERISA litigation over pensions, which is the post-hoc creation of QDROs by probate court judges. In that fact pattern, after the plan participant’s death, a probate court judge goes back to a prior divorce proceeding and enters an order retroactively granting the former spouse of the deceased participant the right to pension benefits, with the order backdated to a time when the participant was still alive and the divorce proceedings were ongoing. You would think this is a bizarre fact pattern, right? Something you would only see on a law school exam. That’s what I thought too, the first time I saw it happen years ago. But as this opinion discusses, this happens all the time, or at least often enough to have generated a substantial body of case law. The Court does an excellent job of surveying that case law in its opinion. If this issue appears in your practice sometime in the future, dear reader, and you haven’t seen it before, you should start by reading this opinion.
Uber, Behavioral Economics, Choice Architecture and Trial Work
There is a lot of discussion on whether lawyers should be required to have at least a certain degree of competency with technology as a core skill set, on a par with, for instance, the rules of evidence. Personally, I am not convinced of the need for any formal requirement: technology is so embedded in any efficient provision of legal services to a client and in any interaction with essentially any business client of any size, that simple economics are going to eventually drive to the margins any lawyer who cannot, on a day in, day out basis, engage with technology on an at least marginally competent level. In other words, there is no need to regulate the profession to ensure such competence, as the marketplace for legal services will do it for state bars and any other regulator: slowly but surely, lawyers who are not technologically proficient will be sidelined by the invisible hand of the market, regardless of what any professional licensure group does or does not do with regard to ensuring professional competence in the area of technology.
Now by this, I certainly do not mean that every lawyer needs to be a coder. But the ability to understand their clients when they talk about coding, or to understand both the tech and reasoning behind electronic discovery, is a core competency in this day and age. Those who can’t demonstrate it, won’t be practicing for much longer.
Its an interesting issue not because of any urgency in mandating technological proficiencies for lawyers – as noted, I think the marketplace will regulate that all on its own – but because it points to the importance of a broader knowledge base for representing clients, and the extent to which a competency in the core social sciences is more necessary, but much less sexy than talking about, competency with technology. I was reminded of this by this discussion of behavioral economics and choice architecture in this extensive New York Times article on Uber’s use of choice architecture to manipulate (too harsh a word? maybe manage is fairer, or at least less pejorative) the driving habits of its drivers. The article notes that:
Sometimes all that is necessary is the mere setting of a so-called default. Because humans tend to be governed by inertia, automatically enrolling them in retirement savings plans and then allowing them to opt out results in far higher participation than letting them opt in. Making Post-Play the default can have the same effect.
“If done right, these things can be socially beneficial,” Mr. Laibson said. “But you can think of all sorts of choice architecture that are quite contrary to human well-being.”
Even Mr. Hall, the Uber research director who downplayed the importance of behavioral economics to the company, did make at least one concession. “The optimal default we set is that we want you to do as much work as there is to do,” he said of the company’s app. “You’re not required to by any means. But that’s the default.”
As an ERISA lawyer, I am quite familiar with the concepts of choice architecture, and the uses to which it can be put, given its central role, at this point, in approaches to retirement plan design. In fact, it is interesting to note that it is this use of the concept that the author of the article on Uber holds up as an example of a benign use of the concept. But I am also familiar with it and comfortable with its use in other contexts, including trial presentation.
A few years back, when behavioral economics and choice architecture were first moving out of the theoretical and into practical application in retirement plan work, I was trying a long case in front of a jury and, right before the end of the trial, the judge asked the parties to agree upon special questions for the court to submit to the jury. For those of you who aren’t litigators, special questions are typically a series of questions that a jury has to answer in deciding a case. In certain complex cases with lots of moving parts, they can end up being a series of questions that the jury is asked to answer in order, with the answer to one question then leading to a couple of possible answers on the next question, and so on. In those types of cases, the special questions essentially become a decision tree, with the answers along the way eventually leading the jury to a final conclusion in favor of one party or the other. For a defendant, this kind of detailed special questions can often be very helpful, because typically a jury can end the case in the defendant’s favor at any of several decision points in the series of questions; for a plaintiff, they are often disadvantageous, because in most cases a jury will have to find in the plaintiff’s favor on each question in succession to find a defendant liable.
As is typical in these types of things, the judge made this request on the last day of witness testimony, with the jury hearing the parties’ closings and then being given the case – including the special questions – the next day. This means that the lawyers on both sides have to work out and agree upon the special questions during the night, while simultaneously trying to finalize their proposed jury instructions and draft their closings to the jury. For many lawyers, as you might imagine, the special questions get short shrift over the course of the night, in favor of time spent on the jury instructions and the closing (trial lawyers are all hams, of course, so naturally writing the closing almost always takes pride of place in prioritizing these items). At that trial, however, I could see that choice architecture could be woven into the special questions, creating a series of questions that, unobtrusively, could influence the jury’s progress through the decision tree that the special questions presented to them. Moreover, it appeared that certain ways of structuring their decisions – primarily in terms of the order in which they passed on certain points – would make it more likely that, at some point along the run of questions, the jury would end up with an answer that would end the case in my client’s favor, rather than continuing along to the remaining questions. The lawyers on the other side of the case, clearly lacking even a passing familiarity with the concepts of behavioral economics and choice architecture, agreed to the structure that we proposed, and, eventually, the jury did in fact find in my client’s favor as it worked its way through the list of questions, somewhere about halfway through the eight or nine questions.
Now, I am not saying this decided the case. In fact, I am quite certain it was my stellar closing that won the case (every trial lawyer thinks every jury case they have ever won turned on their closing, and that every jury trial they have ever lost turned on legal errors by the judge), but the structure of the jury questions certainly didn’t hurt.
So, at the end of the day, is there a point here? Well, Steve Martin wrote in a memoir that the first time he appeared on the Tonight Show, Johnny Carson, during a commercial break, told him that the thing about comedy is that you end up using everything you have ever come across in your life. I think courtroom work, and trial work in particular, is like that, and not understanding current thinking on choice architecture leaves a hole in the knowledge base that a good lawyer should bring to that work. At the end of the day, knowing the key social science concepts of human behavior is a lot more important than simple technological proficiency, but it is the latter, not the former, that the legal industry seems to be focused on currently.
Notes (and a Prediction) on the Supreme Court Argument on Church Plans
I have used this anecdote before, so you can jump ahead if you have either read something where I have written it before or heard a talk of mine where I have said it, but if you haven’t, I have always thought it is a good lead in to any discussion of the church plan litigation. A long time client of mine was hired by his employer as an in-house staff lawyer in 1975, and was told that there is a new law, ERISA, and he is in charge of it. He once told me that, in the early years of ERISA, they used to operate by gut, analogy, metaphor and instinct in deciding what some of the terms meant and how they should be applied, given that much of the statute and its structure was, one, novel and, two, had not yet been interpreted by the courts. In those early years, he often had to decide whether a particular plan should be viewed as a governmental plan – which, much like church plans, are exempt from ERISA – and the test they applied was this: if it looked like it was run by a governmental type entity, quacked like it was run by one, and waddled like it was run by one, than it was a governmental plan, as far as he and his team were concerned.
I think much the same can be said about the status of church plans, and the belief that church plan status broadly applies, which has been followed by the IRS and many entities over the past 30 or so years. As the current litigation over the scope of the church plan exemption has demonstrated, the original assumption that the exemption should be broadly applied has a questionable foundation, and was not founded on the type of rigorous, extensive research and analysis we would normally assume underlies a significant act of statutory interpretation. And this, as much as any other reason, is why we are in the middle of very contentious and financially significant class action litigation over the scope of the church plan exemption, which has now landed in the Supreme Court.
Here are three very good articles on the litigation and on the argument on this issue before the Supreme Court this past Monday. One, from BNA Bloomberg, reflects the level of immediate detail and analysis on breaking ERISA decisions that has made them a mandatory follow for ERISA litigators (and which makes those of us old enough to remember waiting for weekly, paper summaries of decisions to show up in the mail feel like we began practicing law back in the 19th century, and not, as was the case, in the 1990s). The other two, from Planadviser and from The Economist, provide a broader perspective, for those of you who may not have followed the church plan cases as they have wound their way through the court system.
I am already on record on twitter on this (the risk of getting sucked into instant 140 character analysis is just too hard to resist, I am afraid), so I will go on the record with my prediction here as well: it will either end in a 4-4 tie or a 5-3 decision in favor of the plaintiffs in the underlying class action cases.
How Not to Sue an ERISA Governed Plan: Thoughts on the Ninth Circuit's Ruling in DB Healthcare
There may be nothing more fun than ERISA to a lawyer who likes to maneuver among innumerable rules, dodge endless traps, and work out the interaction of numerous potentially inconsistent statutory, regulatory and judge-made requirements. I stand guilty as charged. Indeed, if you were going to create a Myers-Briggs Inventory for the job heading “ERISA Lawyer,” the first question you would put in would ask if you liked civil procedure in law school, because if you don’t like substantive issues like standing, procedural issues like venue, or more run of the mill issues like the scope of discovery, you will never like being an ERISA litigator. Beyond that, if you don’t like a rules based environment, you almost certainly won’t like being a non-litigation ERISA lawyer, with its heavy engagement with express statutory requirements, a million or more regulations from multiple agencies, and constant engagement with the tax code.
I was reminded of this by the Ninth Circuit’s decision yesterday in DB Healthcare v. Blue Cross Blue Shield, which addressed whether health care providers had standing under ERISA to sue health plans for payment for services rendered to plan participants, given that the providers are not one of the categories of individuals – participants, beneficiaries and fiduciaries – expressly granted the power to assert benefit, breach of fiduciary duty or equitable relief claims under ERISA. The Ninth Circuit held that the providers could not assert ERISA claims for two reasons. First, they did not have express standing under the statute; in other words, they did not fall within any of the categories of individuals expressly granted the right to sue by ERISA. Second, they could not claim to have derivative standing – i.e., to stand in the shoes of the plan participants or beneficiaries to whom they had rendered services – because either the ERISA governed plan at issue contractually barred such assignments or, where they did not, the assignments themselves that were taken by the providers were not broad enough to assign the claims.
Are there any broader takeaways from the decision? There certainly are. First, the Court spends significant time explaining who qualifies as a “beneficiary” for purposes of ERISA. This is an issue that is often muddled in ERISA cases, and the decision provides a handy dandy cite for, and explanation of, the issue, usable in all types of ERISA cases, not just provider payment cases.
Second, the Court explained that, with regard to the benefit plans that did not bar assignments, the plan providers still lacked standing because the types of claims they sought to assert against the plans were not within the scope of the assignments they received from plan participants, which essentially only assigned the right to seek payment. Because of the nature of the claims at issue and the dispute, the providers’ claims against the plans sought other forms of relief, and were thus outside the scope of the assignments. There is an important lesson here, but one that can be difficult to put into practice: counsel for providers need to think carefully, in advance of any disputes with health plans, as to what types of claims they may eventually have to bring against such plans, and then draft a standard assignment clause for patients to execute that is broad enough to incorporate such claims.
And third, the Court noted that the providers could likely instead proceed with state law claims directly against the plans based on breaches of their provider agreements, asserting, with only minimal analysis, that such claims would not be preempted by ERISA. This is a subject for a much longer analysis than a blog post, but boy, that is: (1) probably a much better approach for the providers anyway, than proceeding under ERISA; (2) probably what the providers should have pursued in the first place; and (3) probably something that opens up much more expense and risk for the health plans than having kept the claims contained within ERISA. Time will tell, but I wonder if, in the long run, this will come to eventually seem to health plans – after facing endless, non-preempted state law claims over the same conduct – as a pyrrhic victory, similar to the one the British won at Bunker Hill in 1775, where they lost so many troops to take the hill that a commander supposedly commented (though it may be an apocryphal story) that they wouldn’t be able to afford many more such victories.
CapTrust and Target Date Funds
So, Kevin O’Keefe of LexBlog has long preached that the key to effective blogging and other social media professional marketing is to provide actual information that people can use, rather than putting out, under the guise of blogging, marketing materials. In my own blogging and in my own practice, I routinely prefer to, and do in fact chose to, work with legal and other professionals who follow this same mantra: they simply think the way I do, and the knowledge they share is useful to both me and my clients.
Its one of the reasons why I have always been comfortable working with CapTrust, and in particular CapTrust’s Mike Pratico, who – many years ago – became one of its first boots on the ground in New England. Mike passed along to me information on a webinar CapTrust is holding for plan sponsors on target date funds, which have always been, and continue to be, a source of some confusion, in my experience, for both plan sponsors assembling the make up of their plans and for participants trying to decide where to put their money held in a plan. The problem has always been that, like with many things, you can’t judge a book by its cover. The idea of such funds look, on the surface, very appealing, but to make informed decisions about either offering or investing in such funds, one has to look under the hood and understand the investment. I have little doubt CapTrust’s webinar will give people some of the skills and information needed to do that, so I am passing along the link, which you can find here, to register for their March 22 webinar, “Target Date Funds: Ten Years Later.”
What Happens When the Pirates of the Caribbean Go Looking for a Financial Advisor to Help Invest Their Treasure?
All men, who after all are all just overgrown 12 year olds, admire Johnny Depp to some degree – a grown man who becomes fabulously wealthy by playing pirate??? Sign me up! But what’s not to emulate, as this article in the New York Times points out, is his sheer malfeasance in handling his own finances. Depp is now involved in litigation with his management company over who is responsible for the financial disaster he finds himself in, and it looks clear that there is more than enough blame to go around for all parties involved.
But the reason I write about this is not for the opportunity to link to this, but rather because the author of the article, Charles Duhigg, uses Depp’s situation as a frame of reference for considering the appropriateness of the Department of Labor’s new fiduciary regulations. Of course, Depp and his problems don’t implicate the rule itself, but they do illustrate the question of how much responsibility should be imposed on financial advisors to act in their clients’ best interest and how much responsibility should instead be placed on investors to – when it comes to their advisors’ advice – “trust but verify” (which is always a good rule in life, and one I have lived by since the Reagan era). As the author of the article suggests, the new fiduciary regulations can be understood as an attempt to recalibrate where the line should be drawn on the continuum between an advisor’s responsibility to protect his client, on the one end, and the client’s responsibility to protect himself on the other. The new fiduciary regulation moves that dividing line closer to the advisor’s end of the scale, making the advisor a fiduciary of the client’s needs when it comes to investing.
The author suggests that Depp’s extreme lack of attention to his own finances suggests that there are limits on the extent to which the obligation of protecting a client against bad investment decisions should be imposed on financial advisors. However, when it comes to the Department of Labor’s new fiduciary rules, there is something important that the article’s author leaves out of the equation, which is the sheer difficulty of understanding the expenses and risks of investment products offered to clients by their advisors. I litigate disputes over retirement plan holdings all the time, and I can tell you, that information is not always readily available to advisors’ clients, their clients often don’t even know to ask for it or if so, what to ask for, and they often cannot understand the information provided to them. That information and knowledge gap between financial advisors on the one side and their customers on the other cannot be ignored in considering how much obligation to protect customers – including, if need be, taking on the status of a fiduciary – should be assigned by regulation to financial advisors.
Are Forum Selection Clauses Valid Under ERISA?
So the Supreme Court, for the second time, has now taken a pass on ruling on whether ERISA plans can contain forum selection clauses. As this article notes, a number of courts have enforced forum selection clauses in ERISA-governed plans, essentially treating them the same in that context as they would be treated in an action involving a typical private contract, where parties are generally free to select a forum for their disputes.
The on-going dispute over the question of whether plan sponsors can properly include forum selection clauses in plans, and the Supreme Court’s most recent pass on the issue, always makes me think of a comment I recently heard from a federal court judge, who was speaking about her sense that ERISA litigators tend to see themselves – and the area in which they work – as unique and distinct (we are, by the way, and so is the area in which we work!). The judge said that she felt the message from the Supreme Court in its various decisions over the years on ERISA cases, including on what issues not to even consider, was that ERISA is not a world of “special snowflakes” (the judge’s words, not mine) and that most ERISA issues should be governed by the same procedural and substantive rules as would govern most other private, commercial cases, unless there was something in the statute itself dictating a different approach. In other words, I think, this judge would argue (and these are now my words and my speculation, not hers) that since ERISA does not expressly address the propriety of forum selection clauses, the generally applicable standards in the federal courts should govern the issue.
At the same time, though, the statute does contain an express venue provision, but one which admittedly does not expressly void private contracting over venue. It is widely accepted that the venue provision in the statute provides broad venue options to plan participants, and that Congress intended to remove procedural barriers to obtaining redress. Now, I have to say that this depiction has become settled dogma, and I have often wondered whether the statutory history actually supports this assessment as to why the statute contains such a broadly worded venue provision, but nonetheless, this is the interpretation of the statute’s venue provision that we currently operate under. If that premise is accepted, though, it becomes hard to argue with the alternative view that, in fact, when it comes to venue, ERISA is a “special snowflake,” and so too are those who sue under it. If the statute was specifically given a broad venue provision for the express purpose of more fully arming plan participants who sue to enforce their rights, than clearly the statute requires treating any issue involving venue as unique to ERISA and its context, and not just like any run of the mill federal court action.
The Church Plan Cases at the Supreme Court: A Billion Here, A Billion There and Soon You Are Talking Real Money
Several years ago, when the first of the class actions were filed alleging that medical institutions were improperly claiming church plan status under ERISA, I was speaking on a panel at one of the American Conference Institute’s ERISA Litigation conferences, where I found myself eating lunch with two of the lead lawyers on those class action cases. I raised for them – and someone else would eventually ask the same question during their presentation on the church plan class actions – the question of damages. In particular, I wondered what they would ask for, and whether the defendants could afford it. I assumed that part of the relief would be to have the plans made compliant with the full panoply of ERISA’s procedural, notice, plan communication, claims processing, funding and other requirements. But that, I noted, was the easy part; it would only require the defendants to essentially hire really good ERISA lawyers and administrators and fix the plans. But what about the money? Could the defendants fund the massive shortfalls that the plaintiffs were claiming existed in the plans?
Well, of course they could, was the answer. And the size of some of the settlements of those actions to date indicate that truer words were never spoken. As Jacklyn Wille of Bloomberg BNA notes in this article, some of these lawsuits have been settled with the defendants agreeing to contribute from $75 million to as much as $350 million to the challenged pension plans. The defendants in these actions can, it appears, generally afford to fund the plans on the level required by ERISA. The numbers at issue across all of the targeted plans are breathtaking, running into the billions across all of the targeted entities and plans, making the stakes of the Supreme Court’s upcoming consideration of the scope of the exemption and whether these types of entities have properly invoked it among the highest – from a purely financial perspective – of any dispute I can recall coming before the Court recently. As Ms. Wille writes, “the lawsuits claim that more than 300,000 hospital workers face a pension shortfall of about $4 billion because hospitals have wrongly designated their pension plans as ‘church plans’ exempt from the Employee Retirement Income Security Act.” Expect to see no expense spared in the briefing at the high court.
The Year in Review: Looking Back at ERISA Litigation In 2016
2016 was the year that church plans went to the Supreme Court, excessive fee claims came to elite universities and the Department of Labor’s authority to alter its regulation of fiduciary conduct was challenged in multiple courts. Of course, stock drop litigation, excessive fee cases, and other assaults on the make up of 401(k) plans continued apace, even if they yielded the spotlight to flashier, more novel types of cases.
Church Plans Go To the Supreme Court
Over the past few years, at least 36 class action suits have been filed across the country against large medical institutions affiliated with religious entities attacking the status of their retirement plans under ERISA’s exemption for church plans. The lawsuits assert that these plans are not properly within that exemption and therefore must be brought compliant with ERISA. The relevant statutory language governing that exemption – which allows retirement plans to escape regulation under ERISA if they qualify as “church plans” – lacks clarity and leaves room to dispute when a plan qualifies for the exemption. Medical institutions affiliated, even if only remotely, with religious organizations have long designed their retirement plans without adhering to the strict terms of ERISA in reliance on a broad interpretation of the exemption’s scope taken by the Internal Revenue Service. Three federal courts of appeal have now narrowly construed the exemption in a manner contrary to the reading given it by regulatory agencies. The United States Supreme Court recently agreed to address this issue and decide the proper meaning to be given to ERISA’s church plan exemption.
Elite Universities Get the Excessive Fee Treatment
Perhaps the biggest media sensation in ERISA litigation in 2016 was the coordinated and nearly simultaneous filing of multiple lawsuits against many of the nation’s most prestigious universities. The suits, almost all of them filed by Schlichter Bogard & Denton LLP, which pioneered the concept of suing private industry 401(k) plans for excessive fees and undisclosed revenue sharing, accuse universities of paying excessive fees and having other allegedly costly deficiencies in their retirement plans. The lawsuits charge the plans with the typical panoply of complaints about retirement plans built around investment menus, including the use of overly expensive investment choices and excessive administrative costs. However, the suits also charge that the university plans not only include excessive fees and costs, but also an excessive number of investment options leading to poor returns for individual participants.
The Department of Labor Fiduciary Rule Litigation
If the litigation campaign mounted against university retirement plans was not the biggest media splash in the world of ERISA litigation in 2016, then it was only because it was eventually overshadowed by the high profile lawsuits filed seeking to set aside the Department of Labor’s new regulations concerning the definition of fiduciary under ERISA. Not long after the Department issued its new regulations, six different lawsuits were filed in multiple federal courts seeking to have the regulations set aside, arguing that, among other claims, the Department’s regulations exceeded its authority or, if not, then the Department’s rule making was suspect. The courts have upheld the Department’s rule making in two of the cases, while the other actions remain pending.
“Stock Drop” Litigation After Dudenhoeffer
“Stock drop” cases continued along their merry way during 2016, even if the theory of liability, and related cases, fell from the lofty perch they had long held as a hot litigation topic. The term “stock drop” has long referred, in this context, to claims arising from the loss in value of a retirement plan holding that consists of the publicly traded stock of the plan sponsor. Clever lawyering had insulated plan fiduciaries from incurring liability as a result of large losses in the value of such holdings through the creation and enforcement of a legal rule known as the “Moench presumption,” which held that fiduciaries could not be held liable for declines in the value of company stock held in retirement plans absent extraordinary circumstances, such as an existential threat to the company’s very existence. Back n 2014, however, the United States Supreme Court rejected that test in Fifth Third Bancorp v. Dudenhoeffer, holding instead that fiduciaries are subject to liability if they were imprudent in managing or overseeing company stock holdings.
In 2016 , litigation continued apace over dramatic declines in company stock prices and their impact on the value of retirement accounts. However, despite the loss of the “Moench presumption,” overall, plan sponsors and fiduciaries generally fared well in defending against such claims. The highest profile court decision in 2016 in this area was likely Whitley v. BP, PLC, which was a stock drop claim arising from the explosion of the Deepwater Horizon offshore drilling rig, resulting in “a massive oil spill in the Gulf of Mexico and a subsequent decline in BP's stock price.” The Court held that there was no viable defensive action the fiduciaries could have taken to protect the value of the company stock holdings in the plan that would not have simply inflamed the collapse in the stock price, and that this precluded liability for breach of fiduciary duty due to the loss of value in the holdings of company stock.
The central issue in the Whitley action turned out to the be the key issue in stock drop cases during much of 2016, and clearly will be moving forward into 2017 as well: namely, the need for plan participants to prove, for their stock drop claims to proceed, that plan fiduciaries could have taken an action during, or before, the collapse in value of company stock that would have made the situation better, and not worse.
Continued Litigation Over 401(k) Plans
Last but not least, 2016 saw the continuation of extensive litigation over the investment options in 401(k) plans. Many of these claims, both those newly filed in 2016 and those that were filed earlier but that continued to be litigated, were excessive fee cases, alleging that plan fiduciaries included investment options in plans that were more expensive – thus generating excessive fees for vendors – than were necessary. One of the foundational cases alleging this theory, Tibble v. Edison International, continues along after 10 years of litigation, including multiple trips to the Ninth Circuit Court of Appeals and one to the United States Supreme Court. In 2016, the Ninth Circuit reinstated the claims of plan participants that the fiduciaries breached their fiduciary duties by failing to monitor, and then remediate, excessively high fees charged by investment options in the company’s 401(k) plan.
One of the key trends in litigation in 2016 was the expansion of such lawsuits to include more novel and arguably sophisticated theories beyond simply alleging that fees were paid that were higher than necessary. One high profile example consists of the many claims filed charging that financial and similar companies included their own in-house products in the retirement plans of their own companies for the purpose of generating outsize fees for the plan sponsor, in breach of the fiduciary duty to manage the investments for the benefit of the participants. 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.
I Predict the Future in Planadvisor
I, and a cast of other ERISA Nostradamus[es], claim to foretell the future of ERISA litigation – by gazing back at the past year – in this new article in Planadvisor, titled “Expect More Varied ERISA Litigation in 2017.” I am quoted in the article on the trend line of stock drop litigation, but also point out more generally that “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.” The article is worth a read, especially if, like me, you need to fill the quiet hours of the last day before the holiday week.