If one theme has emerged from my numerous blog posts over the last seven years and across the various articles I have written on ERISA litigation during that time span, it is the centrality of operational competence in sponsoring and administering ERISA plans. I have, for instance, often argued that, when it comes to ERISA litigation, the best offense for plan sponsors and company officers is a good defense, in the form of what I have taken to calling defensive plan building; defensive plan building is the idea that taking careful and precise steps in building out, and then running, pensions, 401(k)s, ESOPs, and other plans creates the optimal environment for defending against lawsuits down the road related to those plans. When one can document a careful process for selecting vendors, for picking funds, for the fees attached to plans, for the handling of float income, and for all the other myriad choices that must be made with regard to how a plan will operate, it becomes relatively easy to defend fiduciaries and company officers alleged to be fiduciaries against breach of fiduciary duty actions, because these types of documents and steps demonstrate a prudent process.
Likewise, there has been a clear trend in the case law over those years, directly reflected in my posts and writings, towards the loosening of the procedural and substantive advantages held by plans, sponsors and fiduciaries. These shifts run from the subtle – such as a tendency for courts to now look much more closely at medical evidence in benefit cases, even where arbitrary and capricious review applies – to the bold, such as the Supreme Court’s expansion of equitable remedies in Amara. All of these shifts have this in common: they decrease the likelihood of a fiduciary or sponsor winning early in a case on procedural grounds, and increase the likelihood that a court will eventually reach the merits of a claim. Excessive fee litigation provides a ready example, as we have shifted, in just a few years, from early and relatively easy procedural victories for defendants in those types of cases to substantial settlements and the occasional outright trial victory for participants. What does this have to do with operational competency in operating a plan? It makes competency in running the plan ever more important, because it increases the likelihood that a court will someday consider the merits in a lawsuit targeting those actions, rather than the case ending, as it often would have in the past, at an early point in the litigation on procedural or highly technical grounds.
My latest published article, “Opening Up the Courthouse Door: The Second Circuit
Weighs in on Exhaustion of Administrative Remedies,” addresses this idea in another context, namely the weakening, in a recent Second Circuit opinion, of the requirement of administrative exhaustion as a defense against ERISA actions. As I discussed in the article, for many years, this defense was a solid bulwark against many ERISA claims, one that could often stop a suit long before the parties or the court would get to the merits of an action. Indeed, historically, participants who tried to argue their way around this requirement rarely succeeded. The Second Circuit, however, as I discuss in the article, substantially weakened that defense and opened up a new line of attack for participants faced with the claim that they had not exhausted their administrative remedies before the plan administrator. As I discuss in the article, it is yet another example of courts making it easier for participants to prosecute ERISA claims and, in particular, to leapfrog the type of early procedural defenses that defendants used to be able to use to stop many such claims in their tracks at a very early stage. Anything that makes it easier for participants to get the merits of a lawsuit in front of a court increases the importance of competence in running the plan, because it is the level of operational competence that will be on trial once a court gets to the merits of an action.