This week’s Five Favorites for Friday is truly driven by current events, with stories spanning shipping in the Middle East, the most recent ERISA class action decisions, and rising concerns about including alternative asset classes in 401(k) plans.

  1. Courts tend to course correct over time when it comes to class action litigation, with the goal of finding the right balancing point where potentially meritorious claims can proceed but the gate is sufficiently barred against strike suits intended primarily to generate fees for the lawyers. ERISA is having that moment now, as Congress, regulators and the courts try to find a way to reduce the filing of questionable class action claims without choking off valid claims, after fifteen or so years of steady development (both in numbers and in success) of this type of litigation. The latest approach is to require the plaintiffs to plead that an investment option challenged in a complaint is underperforming relative to a reasonable benchmark, and to dismiss the action if the complaint lacks such a comparison. But as this Bloomberg article on one such dismissal reflects, what is and what is not a reasonable benchmark in this circumstance can be very much in the eye of the beholder. And one solution to that problem, again as the article discusses, can be for a court deciding a motion to dismiss to give the putative class multiple opportunities to find and plead a benchmark that the court considers reasonable. Some might say that giving the putative class multiple bites at the apple on this issue defeats the purpose of using motions to dismiss to cost effectively weed out meritless claims. Others, though, including me, might suggest that it is a reasonable way for the court to use motions to dismiss to bar the gate to the courthouse in appropriate circumstances while examining a case sufficiently to avoid barring potentially meritorious claims.
  2. The central theme of a great deal of commentary and judicial decisions in the area of ERISA class actions concerns the need to keep the courthouse doors open to meritorious cases while still limiting the extent to which dubious claims are allowed to proceed into full blown litigation, with the accompanying costs to plan sponsors and their insurers. Even when not said out loud, this premise is never far from the surface. The Department of Labor has been filing amicus briefs that seek to help draw the line between the two types of claims, and is doing it pretty well so far in my opinion. This is a great post discussing those filings.
  3. Speaking of meritorious claims, I remember when defense lawyers in ERISA class actions would sometimes forego fighting over class certification so that they could get on with the real business at hand, which was litigating the merits of the ERISA claims at issue. Now we have a new decision from the Fourth Circuit decertifying a class in a putative ERISA class action and sending the case back to the District Court to start over, based on highly technical but also factual considerations for class certification. Here’s a good story on it. This type of analysis and approach by a court certainly raises another barrier to the prosecution of ERISA class actions, but I am not convinced it gets anyone any closer to culling the wheat from the chaff when it comes to keeping the courthouse doors open for meritorious ERISA class actions but not for others.
  4. Lloyd’s is the Indiana Jones of insurers. They will go anywhere and insure anything, at least in popular imagination. To me and others who follow the industry, they are more accurately understood as an entity that understands risk, the numbers behind them and what to do about it. As I discussed in a blog post way back when, for instance, Lloyd’s started tackling what climate change meant for insuring risks long before anyone really discussed the issue publicly in any depth. For now, publicly, they are insisting they are still insuring shipping in the Middle East, but for how long and at what price? This is a good article on the subject, but one wonders how long any article on this subject will remain current. Still the issue is about as important as there is in the insurance world at this point. Maybe we should just check back when we get to next Friday’s Five Favorites and see where things stand at that point?
  5. I have written extensively on what plan sponsors and fiduciaries should do to protect themselves when it comes to adding alternative asset classes into the 401(k) plans they run, including here and here. Some of the most experienced people in finance are now also sounding the alarm about the risks of allowing them in.