Trust But Verify: The Importance of Private Attorney Generals to Plan Governance

Here is a neat little story that illustrates a bigger point. The article describes the resolution of a Department of Labor lawsuit brought against a small company to recover approximately $100,000 of participant holdings in a profit sharing plan that was diverted to other uses. Its own moral is clear – plan sponsors need to remember that plan assets belong to the plan, not them – but one that is too often forgotten in closely held, smaller companies. The bigger story, though, is the one this case illustrates. I have written before about the idea that ERISA is really a private attorney general statute, one that uses the awarding of legal fees to a prevailing participant as a means of allowing individual participants to retain counsel and enforce fiduciary discipline, even in cases where the amount at risk – such as the one hundred thousand at issue in the article – wouldn’t otherwise justify either a participant paying out of pocket to hire counsel or a lawyer taking the case on contingency. And yet, as this case shows, there are real breaches, real problems, and real losses in many plans that require legal redress; this remains true even when the amounts at issue aren’t particularly large, as the losses are still significant to the participants who incur them. The Department of Labor itself does not have the litigation resources, relative to the number of plans out there, to litigate each and every such case, and has to pick and choose. Allowing recovery of attorneys fees allows those participants whose cases are not pressed by the Department of Labor to still bring breach of fiduciary duty actions and thereby enforces a level of legal oversight on plan sponsors that might otherwise not exist. The ERISA structure is, to a certain extent, dependent upon – and assumes the existence of – such private enforcement actions; they impose a level of discipline on fiduciary conduct that would otherwise be absent.