Busy, busy week. I don’t know who thought it was a good idea to put Thanksgiving in the fourth quarter but they probably should have given a little more thought to whether a three day week in the middle of the last quarter of the year really makes sense.

Oh well, as I pointed out to opposing counsel during a settlement discussion yesterday, never listen to someone who bills by the hour complain about being too busy.

I could have written full time this week on my blog and on LinkedIn about the interesting insurance and ERISA articles, podcasts, webinars and the like that came across my desk this week. Here’s a look at a few of them.

1. There’s a lot to like in this blog post by Adam Grossman on HumbleDollar, starting with the hook, which is a $10,000 auction sale of a painting that turned out to be a long lost DaVinci and most recently sold for $450 million. But for my purposes what I really like about it is that the author explains the arguments for putting private equity into retail accounts in 401(k) plans and then debunks those arguments. Most importantly, he explains why he believes there are multiple other retail level investment options available to 401(k) plans that are much better at solving the same investment problems that private equity investments would allegedly solve for plan participants, with the options including “mid- and small-cap funds, value funds and international funds.” He then goes on to essentially cross-examine the arguments for instead using private equity investments to address the investment concerns at issue and, in so doing, raises serious questions about many of those arguments. Now, you can quibble with the conclusions he reaches, but the simple fact of the matter is that a plan fiduciary who allows private equity into a 401(k) plan is at risk of someday having to face those exact same questions about the propriety of choosing private equity investments as an option, only as a deponent at a deposition or in the witness box at a trial. Before signing off on adding private equity investments to a 401(k) plan’s investment menu, plan fiduciaries should make sure they know how they will answer the same challenges to the use of private equity in plans that the author raises – because they are likely to be asked them someday with their own personal liability on the line.
2. The ERISA class action bar’s attempt to make forfeiture issues under defined contribution plans a thing isn’t going well, and it is certainly not getting any traction. For those of you unfamiliar with the subject, it’s well covered in this Bloomberg article this week, discussing the dismissal by a federal court of an action making those allegations. To me personally, and based on decades of ERISA litigation experience, I think the problem for the plaintiffs in these cases is that they are effectively trying to criminalize a decision that is reasonable, and to do that they are going to need to offer more to courts at the motion to dismiss stage than just arguments over the propriety of the conduct – they are going to have to find some additional fact, document, or clearly self-enriching conduct to point to in their complaints, beyond just the decision by the plan fiduciaries about forfeitures. Only then are they going to routinely get past the motion to dismiss stage of these cases. And by this I mean something a lot more damning than just asserting that the plan sponsor and fiduciary picked the forfeiture approach that is best for them, when they could have picked one which is instead better for plan participants. That alone clearly isn’t cutting it.
3. This is a bit of a cheat on the rules of the five favorites post, but I write the blog so I make not just the rules, but also its exceptions. I am writing another one of today’s list of five based on the same Bloomberg article that I discussed in the preceding paragraph. That’s because there are two issues raised in that article that I want to discuss, and combining them into one paragraph would result in a single paragraph so long that no one would finish it. In addition to discussing forfeitures, the article discusses the same judge dismissing class action claims in the same case asserting that the fiduciaries allowed overpriced and underperforming funds in the plan. The article explains that the judge found fault with the plaintiffs’ tactic of arguing that various performance measures were sufficient to support the claim and held that this alone did not demonstrate a breach of the duty of prudence, but might instead simply be the result of reasonable, and thus not actionable, decisions by the fiduciary. Courts are showing a lot more skepticism at the motion to dismiss stage with regard to these types of debatable financial and performance comparisons between a platonic investment ideal envisioned by plaintiff’s counsel and the real world performance of the funds held in a plan than they ever did. I have a few theories as to why. First and foremost, years of excessive fee litigation have, in fact, made fiduciary performance in this area better, and courts are responding to it on many levels, including giving fiduciaries the benefit of the doubt where warranted in these types of cases. Second, years of relentless pushback from the defense bar, large plan sponsors and organizations representing both have increased judicial skepticism of both the costs to defendants and the merits of these types of claims. Third, I believe we have reached the lifecycle stage in excessive fee litigation where many of the best cases by the best lawyers have already been brought and concluded, and we are now seeing weaker claims filed by more firms that are just jumping on the bandwagon looking for fees – what in my IP days we would have called patent trolls or copyright trolls. Good excessive fee cases lead to big settlements; poor factual ones lead to dismissal.
4. I have been having a good bit of fun since the start of the AI hype cycle pointing out the gap between the end of lawyers that the sales pitches have pushed and the reality, but it is probably time for me to stop running with that joke. Beyond the punchlines, I have also written a couple of serious articles on LinkedIn exploring the real impact of AI on lawyering, and I summed up my current substantive thinking on the issue recently in this post. To some extent, my joking about this subject has been empowered by the extent to which so much of the writing on this subject has been either pure hype or extremely shallow, or both. That’s not the case for this piece here, which discusses the use to which AI is being tested and incorporated into workflows by larger firms who are leading the way in this regard. To me, the lesson of the article is that some of the smaller and boutique firms out there are likely whistling past the graveyard when (as I know they are) they tell themselves stories like AI just won’t impact them because of the nature of their practice, or that their level of service or expertise will still be sought out by clients regardless of AI, or that they will be able to actually compete better with bigger firms who have long had a staffing advantage now that the labor saving aspects of AI are here. They are not all whistling past the graveyard – some have the talents, client relationships, and/or pocketbook for incorporating AI that will let them continue to thrive. But for many of the boutique and smaller firms who may be telling themselves those stories, they should read this article and grasp just how thoroughly prepared their larger competitors are to take advantage of AI to perform better work for their clients, and then should ask themselves if they are really going to be able to match their efforts (or are going to put in the work to do so).
5. Do you ever learn anything on the internet? I do . . . sometimes. AI isn’t making it easier. I recently asked it for information on a Cooper’s Hawk, and it told me all about a bar with that name when I was just looking to confirm the identifying marks of the bird. Bad prompting by me, I guess. So when I do actually learn something that might be of use to those who are interested in the subjects covered by this blog, I like to pass it on. Here’s a great overview of auditing ESOP plans. As many know, I am a big fan of ESOPs on many levels, but as someone who has litigated cases involving them – both on behalf of employees and on behalf of the plan – I firmly believe that their value to employees is directly correlated to how scrupulously they are run. This presentation is a great introduction to the audit and valuation process.