It’s that time of the week again! As some of you know, every Friday I cover five of the many things that have crossed my desk over the week, but which I have not had time to write about yet, in one fell swoop. Here are this week’s five winners.

  1. This is a terrific article about pricing, underwriting, coverage limits and insureds’ knowledge of their coverages with regard to cyber insurance at this point in time. What’s most interesting to me about it is that it reflects that insurers believe they now have their underwriting approach squared away and the positive impact that is having for insureds with regard to cyber coverage. It illustrates how in the best of markets, insureds and insurers both benefit from an informed, well-adjusted market for particular coverages. Over time, neither insureds nor insurers benefit from a poorly priced market caused by the novelty of a developing risk or lack of accurate information. Equilibrium serves everyone better over time, as the article reflects.
  2. About 10 or 15 years ago, I got involved in a blog battle with some scholars of retirement over the financing cliff faced by social security and also by some pension plans (particularly public), when I suggested that one central aspect of any fix would be to raise the retirement age. My adversaries suggested that this was a fine idea for someone like me, a knowledge worker who went to the gym at lunchtime every other day, but that for many people with physical jobs, that wasn’t really a useful suggestion. I had to admit at the time that they had a point. I thought of that long ago debate when I came across this detailed article explaining how the data actually supports the position that later retirement ages are actually better for health and longevity. If you accept the data and the analysis, then it is possible that the proverbial knowledge worker – along with the society that has to bear the costs of health declines in an aging population – is better off retiring as late as possible, and not linking that to the invented construct of 65 as the proverbial age of retirement. And if you accept that, then maybe many of the rules around ERISA – such as required minimum distributions – are ill thought out, as vestiges of a belief that retirement, and the burning off of retirement assets, should occur on some sort of standardized timeline.
  3. I insist so far on remaining neutral on the question of whether the push to put private equity and other alternative investments into 401(k) plans is appropriate or, instead, just the latest version of the old saw that Wall Street sees retail customers as the dumb money. I remain neutral because I still don’t believe I have seen legitimate, confirming data that adding these asset classes into 401(k) plans will benefit participants and increase their returns without excessive increase in volatility or other risks, and until that point is established, any such move by plan sponsors and fiduciaries puts them, more than anyone else other than the participants themselves, at financial risk. At the same time, to be fair, no one has yet convinced me, on data and not just supposition and argument, that there is no possible way such assets could benefit participants. And thus being an evidence-based lawyer (always useful in a litigator) and an evidence-based skeptic in general, I am still waiting to be convinced one way or the other. However, here is a good story on exactly why moving plan participants into these assets may just not work out well for plan participants or others who end up holding those assets when they are moved out of private equity vehicles. And as I have written many times, including in this guide for plan fiduciaries on how not to end up getting sued over this issue, outcomes like these, with potentially serious losses on these types of assets, make it very risky for plan fiduciaries to make the decision to add these classes of assets to plans.
  4. Is there a bigger bane in the backside (to clean up a barnyard epithet) for ERISA plan sponsors and administrators than uncooperative, unresponsive or outright missing plan participants, particularly when required minimum distributions come due? Well, one thing that will make that less of a pain for those who have to work around them is this excellent guide to “Complying with the Required Minimum Distribution Rules When Participants Are Unresponsive or Uncooperative.” Information and knowledge are always power, and so too with this problem.
  5. Nuclear verdicts are here to stay. As I have written before, changes in wealth distribution, housing costs and educational costs, which have reinforced an economic caste system that is obvious to anyone sitting in a jury pool, along with the increasingly public flaunting of wealth, has entirely changed the makeup of jury pools and how jurors value losses when they deliberate. When the lost income component of a case involving long term harm to a worker adds up to less than the jurors know the house down the street from them costs, or wouldn’t be enough to cover state college tuition, or whatever other comparator you want to use, it should not be surprising that juries now put a lot more zeroes in their awards for pain and suffering or other amorphous parts of damages awards than they did twenty years ago. Here is a terrific and up to date article on what that means for insurers and corporate defendants.

So much to choose from to write about this week, but I am, by my own rules for this series of posts, limited to five topics. I noted last week that there was a risk I would beat holiday jokes into the ground this month, and here I go again, starting with an article about Santa, and then moving onto AI generated holiday scenes.

  1. Santa Claus is coming to town. Or maybe not. As this Planet Money article reflects, demand for hiring Santas for the holidays is down significantly. Why does this matter and, more importantly, why does it matter for the purposes of the topics of this blog? Well, we all have our favorite tells about the economy. For me, before the pandemic and the rise of remote work, a clear leading indicator of an upcoming economic downturn was when it started getting easy to get a parking spot for the 8 am commuter rail train into Boston, as you could never get a spot during a boom (you had to instead get there for the 7 am train). On the other hand, once the lot, empty for months or years, began filling slowly up again in the morning, it was a leading indicator that we had hit bottom and it was time to buy the dip. Less Santas almost certainly correlates to less holiday spending, which likewise almost certainly correlates to less financial confidence on the part of employees – as I have written before (including here, in the last item), what harms the labor market reverberates in increased ERISA litigation, including breach of fiduciary duty claims over benefit plans. I have never had more class actions on my docket than within months of the 2008 collapse, and wouldn’t finish off the last of my Great Recession driven lawsuits until more than six years later. So pay attention to the underemployed Santas – they are likely a sign of rising risks for plan fiduciaries.
  2. An angry internet mob bearing pitchforks has come for a McDonalds’ ad featuring AI generated actors and scenes. I don’t know – personally, I think the ad is kind of funny. Watch it yourself here and see what you think. (Me, I love the part where the cat takes out the tree). What’s not funny when it comes to AI, though, is the potential mischief that may come from allowing AI into the claims handling process. As I discussed last week in this post, massive bad faith judgments are being imposed against insurers based on the pattern of errors that can show up in a claim’s history simply because human judgment, which is all claims handling really is, is not infallible. While AI has some real potential to improve claims handling, primarily in ensuring that the information on which judgment calls are made is accurate, well documented and thorough, it is not going to remove human judgment or the fallibility of human judgment from the process, and thus any fantasy that AI will perfect claims handling is just that, a fantasy. But it can improve it. And as insurance broker Mark Flippen pointed out in this excellent post, some states are already passing bills intended to ensure exactly that, namely that AI’s incorporation into claims processing actually improve the process from the point of view of insureds and claimants.
  3. I have seen trade dress from all sides of the insurer’s perspective. My very first argument was in the famous Norfolk courthouse where major historical cases, such as the Sacco and Vanzetti trial and the Karen Reade trial, had occurred, and concerned whether coverage existed for a claim by one competitor that another had ripped off its trade dress (there was no coverage and, in point of fact, it was pretty obvious that the insured had done exactly that). Years later, I would litigate a trade dress dispute over the packaging of competing biotech products, where the defendant received a defense (provided by me) under its insurance policy, after the claims pled in the complaint triggered the duty to defend. While other claims in that case would be tried, the trade dress claim went away on summary judgment. You noticing a pattern here? That trade dress claims sound great but don’t tend to pay off? Yup, that’s the same lesson I drew from decades of experience with them. This article on a trade dress dispute over Uncrustables peanut butter and jelly sandwiches shows why – the element of consumer confusion is a tough bar to hurdle.
  4. Nuclear verdicts are, in my opinion (which is based on decades of studying them for purposes of resolving and, where necessary, trying the insurance bad faith and coverage claims that arise from them), driven by a number of identifiable factors, including changing views of jurors of the world around them. It may be time to think carefully about what a nuclear verdict, including an award of $10 million in punitive damages, in an employment discrimination action, tells us about how jurors are viewing workplace dynamics. For what it’s worth, I predicted the expansion of nuclear verdicts from the personal injury environment to the employment context years before it happened, in this post.
  5. Someone once said that Marx was wrong about a lot of things, but he was right that everything is economics. The impact of rising homeowners insurance premiums, and even more so of the loss of private coverage in some areas, is dramatically changing the makeup and the nature of various neighborhoods across the country. This article does a great job of showing the toll this is taking at street level in America.

For this week’s Five Favorites for Friday, I have a full stocking of gifts (too early for Xmas allusions? Maybe, but I was in New York for work and saw the Rockefeller Center Tree, which inspired that lede). Let’s get right into opening them up (and yes, I will probably beat that gag to death for the next few Fridays – just so you are prepared).

  1. First off, you will likely have seen the news that a congressman, apparently with no prior known interest in retirement plans, has out of the blue offered up a bill to make it tougher to plead breach of fiduciary duty claims under ERISA, particularly with regard to excessive fee cases. Color me non-plussed. The inevitable tightening up of standards for bringing ERISA class action cases is already under way, by means of strict enforcement of standing requirements to dismiss cases early and increasing judicial skepticism of new class action theories under ERISA. The bill, if it ever becomes law, is likely to be targeted at a problem that has effectively resolved itself, to the extent that the goal is to reduce non-meritorious class action ERISA cases. The question will be whether the bill, as and if finally enacted, throws out the baby with the bathwater, in the sense of barring meritorious class actions claims and not just those that – in my IP days – we used to call strike suits, in other words cases filed just to get a small settlement and a fee for the lawyers. Judicial skepticism and an aggressive use of standing are unlikely to have the effect of also precluding meritorious actions, but it wouldn’t surprise anyone if the bill, as finally enacted, does.
  2. And in that regard, here is a good writeup of the recent dismissal on standing grounds in Lewandowski v. Johnson & Johnson, finding that plaintiffs could not definitively enough show harm from mismanagement of health benefits to support a claim. I don’t know about you, but these types of rulings read to me like courts are moving liability issues up to the motion to dismiss stage that they would have, until recently, left open until after discovery and instead decided later on summary judgment motions. And objectively speaking, if you ignore the costs to defendants and their insurers of litigating class action claims that are plausible but end up foundering at summary judgment, they probably belong at the summary judgement stage for resolution in most cases, rather than being advanced up the rules of civil procedure to be decided instead at the motion to dismiss stage.
  3. $90 million is a lot of money. Even the judge who awarded it as bad faith and Chapter 93A damages against Liberty Mutual because she found unreasonable claims handling and believed the case law to leave her with no discretion in this regard, thought it was a disproportionate award. On the flip side for Liberty Mutual and other insurers who are presumably looking at the ruling in horror, if there was ever a decision perfectly written to allow an appeals court to revisit various aspects of bad faith law in the Commonwealth and rein in some of its most debatable aspects, this is the one. And I don’t mean that in a negative way with regard to the opinion itself – the decision is an excellent analysis and presentation of the totality of a complex area of law and of decades of case law (the judge actually goes so far back that she cites a decision from the first Chapter 93A case I ever tried, back in 1995). Instead, I mean that the Court’s scholarly treatment of the issues presents the perfect trial court decision for testing the appropriate scope of recovery in such cases. I discussed the opinion here.
  4. I have always been quite happy to work out alternative fee agreements with clients, including hybrids, flat fees and contingencies. Clients, however, often prefer hourly billing – and sometimes in my own practice they have been right to stick to it, spending less on cases I have won than they would have ended up paying out as a success kicker or on a pure contingency, for instance, had they elected that route instead. As someone in the insurance industry pointed out to me the other day, not all cases are susceptible to valuation using alternative fees, and sometimes hourly billing is in fact as close as you can get to rough accuracy in pricing in those instances. I liked this opinion piece to this effect, addressing the idea that AI is more likely to supercharge lawyering that is done by the hour than it is to eliminate the billable hour. Not sure the author is right, but time will tell.
  5. Every lawyer I have ever met has used the movie line “I do not think that word means what you think it means” at various times. In the insurance coverage world, we often throw around the terms “tail” and “runoff” somewhat indiscriminately. I was pleased to come across this explanation of the terms in the context of D&O risks and exposures.

About 24 years ago I won a trial on behalf of Liberty Mutual in an insurance bad faith action in which plaintiff’s counsel sought to multiply an underlying multimillion dollar judgment against the insured based on an alleged bad faith failure by the insurer to settle the tort claim. At the time, it represented – as best as I could tell – the first and best effort by a leading Massachusetts plaintiffs’ firm, Keches Law Group, to treble, based on bad faith under Massachusetts General Laws Chapter 93A, an underlying large judgment against an insured defendant. Had I lost, at the time it would have resulted in the largest Chapter 93A judgment against an insurer for bad faith failure to settle a claim in Massachusetts history, as well as established new theories of liability in this regard that would instead not be established until many years later, in a major case by a leading Big Law firm against a different carrier.

I bring this up because the wind brings news now of a $90 million bad faith verdict against Liberty Mutual obtained by the same Keches firm, pursuing the same goal, decades later, of having a trial court treble a large underlying judgment against an insured. Under Massachusetts law, an insurer that violates the claim practices statute in bad faith is subject to an award of damages equal to double or treble the verdict entered originally against the insured – that verdict here was over $26 million, well above the commonly accepted threshold to qualify as a nuclear verdict. The best sources I have found for reading about the verdict are this LinkedIn post and this PR distribution by the Keches firm.

As you can tell from this history, the plaintiffs’ bar in Massachusetts has clearly gotten better over the past quarter century at prosecuting these types of claims. Have insurers and their lawyers gotten better at defending these types of claims over that time period as well? I am not so sure about that. One of the things the plaintiffs’ bar has done a very nice job of over the past couple of decades is deciding which cases to press forward with in the interest of creating new law favorable to claimants on bad faith, as opposed to which ones to simply settle. I am not convinced that insurers and their counsel have successfully matched them in that regard, as many of the decisions that have created poor law for insurers over the years on bad faith in Massachusetts involve cases that, looking closely at their facts, probably should not have been presented by insurers to appellate panels with the power to craft and shape the law in this regard – they likely should have been settled long before that could occur. There are at least two or three that jump out at me in this regard even as I write this, and I suspect other lawyers would have their own list of different cases in this regard.

To be both fair and clear, I should note that much of this is only apparent in hindsight, after the appellate decisions have been issued. And more importantly, the current state of play in this regard is not all (or even mostly) attributable to insurers and their counsel allowing bad cases, with bad facts, to be used by the plaintiffs’ bar and the courts to make bad law for insurers – with the result that a nuclear verdict can now be multiplied into an additional $90 million verdict against the insurer itself. Much of it is instead due to the fact that, in the end, there is no and cannot be perfect claims handling on any claim, if you define perfection in this regard as being devoid of any decisions or omissions that a judge or claimant could later criticize as erroneous and harmful to the claimant in some way. Claims handling is an inherently human activity, involving an endless series of judgment calls made in circumstances of incomplete information, in the context of an adversarial relationship with a claimant who typically has no motivation to be completely open with an insurer on the facts or other issues of a claim.

There’s an argument to be made that we have reached a point where Chapter 93A and Massachusetts bad faith law penalize insurers, to a disproportionate extent, for routine and typical errors in claims handling, treating them too often as representative of subjective bad faith sufficient to justify massive bad faith judgments. It is probably well past time for the pendulum to swing back the other way, towards accepting that mistakes will routinely occur in claims handling and that a series of errors is not enough to justify a large bad faith award, absent evidence sufficient to fairly demonstrate a subjective intent on the part of an insurer to lowball or refuse, for nefarious reasons, to settle. At this point in the history of bad faith and Chapter 93A law in Massachusetts, large bad faith verdicts can be and are granted based on much less than that.

This is not intended to necessarily be a criticism of the decision itself or the Court’s deep analysis of the evidence and thorough consideration of the relevant case law (in fact, the court cites three or four of the decisions from my own cases over the years, and my understanding of the nuance of those cases makes me confident in commenting on the high quality of the Court’s analysis of existing law). It is more intended to suggest that the current state of the case law, which the Court accurately explained and applied, may have swung a little too far in one direction over the years.

Indeed, the Court itself acknowledged that the size of the award it was required under existing law to enter raises questions and concerns about the current state of the law in this regard. And so perhaps, on appeal, this decision may be the right lever for redirecting the course of the case law on these issues.

I wasn’t quite sure what to do about Five Favorites for Friday this week, given that today is an unofficial holiday, Black Friday. I couldn’t move it up a day, as that would require publishing it on an actual national holiday, Thanksgiving.

And I didn’t want to move it up to the middle of the week, to Wednesday, because then it would be Five Favorites for Wednesday, which lacks the alliteration that is central to my interest in writing it! See here.

I was stuck until one of my favorite newsletters, from NPR’s Planet Money, landed in my in-box this week, and showed the way – this week, it used a theme of identifying articles for which its writers were thankful. And once I saw that, I knew how to handle this week’s Five Favorites for Friday post. So here, to give you something to read while waiting in line on Friday at the mall, are five articles or podcasts I am thankful for this week and why.

  1. For the first, I go right to the inspiration for today’s list, NPR’s Planet Money newsletter, and its very first article, which is about an economics paper addressing the correlation between the cost and requirement of having car seats and the number of children in a family. The story points at the extent to which the underlying financial costs of family size directly impact family size. Why is this relevant to the subjects of this blog? Because the question of being able to fund and afford a secure retirement many decades down the road plays much the same role in determining family size and parental preference in that regard, particularly as pensions have vanished and the burden has shifted to the employee to amass the capital needed to fund retirement income at the same time the employee has to incur the long tail costs of raising children. Family size and retirement security are not unrelated, just as child car seat regulations and family size are not unrelated. Those of you who have read my posts about borrowing from the concepts of behavioral economics for use in lawyering, know that I like interesting and not obvious lessons from economics – and I am thankful for coming across this one during the three days running up to the holiday.
  2. I am very thankful for this recent WTW publication explaining the current status of pension risk transfers. I have worked on them and think, in the right circumstances, they have a lot of value and are an appropriate fiduciary action, but in other circumstances and given certain variables, that may not always be the case. There is an awful lot of litigation, potential litigation, transaction volume and potential future systemic financial risk at play in them at this point, however, so having a functional understanding of the transaction and the issues is important. I am thankful for this article as it provides any interested reader with a fairly substantive understanding of the transaction.
  3. But where in the world did pension risk transfers even come from? And what market forces and regulatory changes were necessary to give rise to them? It’s a fascinating question and one that would require a deep historical dive to figure out. And so I am thankful for this great piece by Steve Keating tracing the entire 50 year history leading up to the current state of play on this issue.
  4. Litigation around pension risk transfers, and theories of how or why liability could exist in such a transaction, is robust. The primary concern or argument is whether the loss of ERISA protections once the pensions have been replaced by annuities places the former plan participants at financial risk in a manner that holding a pension under a plan did not. One way of looking at this question is to consider the existence of PBGC protection, and whether it continues after the transaction turning the pensions into annuities. There is a good argument that PBGC protection should remain in force and I am thankful for this excellent paper by Ivins, Phillips and Barker attorneys Kevin O’Brien and Spencer Walters that makes the case as to why.
  5. It’s behind a paywall (which isn’t something I am thankful for, but I happen to be a subscriber) but I am thankful for Bloomberg’s series of articles and a podcast raising the question of whether the role of private equity and insurers in the handling of retirement funds, including in pension risk transfers is safe or instead poses systemic risk. I am thankful for it because, frankly, you should read the whole series and then decide for yourself what you think about it.

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.

Financial expert turned professional writer Susan Mangiero has a new article out on the issue of adding alternative investments to 401(k) plans. It provides an excellent summary of the issues and is particularly helpful if you are new to the topic – it will get you up to speed quickly.

I make a guest appearance in the article, cautioning advisors to plan sponsors and fiduciaries to step carefully. As the article explains, “Attorney Stephen Rosenberg, an experienced litigator and partner with The Wagner Law Group, reminds advisors [to plans] of their responsibilities to avoid undue risk, stating, ‘Access whatever expertise is necessary to make an informed recommendation to your clients.'”

Sometimes, in some forums, I can sound a little more strident about whether the movement to add alternative investments to plans is safe for plan sponsors and fiduciaries than I do in this article. It isn’t so much that I am interested in being some sort of a Cassandra about the movement to add these asset classes into plans, but more that I am concerned about the complications and risks for those who sponsor such plans and for those who accept the potential liability of serving as fiduciary for such a plan.

To date, despite my raising the question often, no one appears to have proffered a study or data clearly demonstrating that adding alternative assets into plans will increase participant returns without disproportionately increasing the volatility and risk faced by participants as market investors. Particularly in the absence of broadly accepted proof to this effect, plan sponsors and fiduciaries court possible breach of fiduciary duty suits by adding alternative investments to their plans.

For large plans that want to add such assets, my view is more power to them. If they want to do it, go for it. I still think that on the current evidence it’s the wrong move and that they are inviting litigation, particularly because the size of their plans will make them a tempting target for the class action bar. But they are big boys with the insurance, legal teams and deep pockets to invite that brawl into their parlors if so inclined.

But for most other plan sponsors and fiduciaries, they will be putting themselves at risk without necessarily having all the resources at their disposal needed to confront litigation over the question of whether such assets belong in their plans. And for them I still say follow these steps before even deciding to allow alternative assets to be part of the investment menu. Doing so will make them less of a target for roving bands of plaintiffs’ lawyers looking for targets to sue if adding the asset class turns out to be the wrong move, and if sued, will give them the high ground to fight from.

Late Thursday night is one of my favorite times of the week. The house is quiet, the dog is snoozing on my feet, the football game is on the tube, and I have time to write this week’s Five Favorites for Friday post.

So let’s get it started.

  1. A few years back, I first chaired a two week long trial in Massachusetts state court. Right before discharging the jury, the judge thanked the jurors for their service and then noted he also wanted to thank all of the lawyers for a well-tried case, noting in particular that he wanted to thank my second chair – we will give him the pseudonym “Mr. Eric” – because, as the judge said, “we know from the fact that Mr. Eric didn’t say a word in front of the jury for the past two weeks that he was the one who actually did all the work.” And there was some truth to that, and in our next trial together I would let him have the opening (I kept the closing for myself) and a few of the fact witnesses (it was an expert driven case and I wanted the experts). I mention this story because one of the tasks that normally should have fallen to Mr. Eric as the associate on the case and the second chair at trial was drafting the special questions for the jury, but I did those myself. The reason was that I had become very interested in the insights of behavioral economics, and believed it held lessons for courtroom lawyers, including with regard to structuring questions to present to a jury – so I wrote them myself, on the last night of trial before the jury would get the case. Why do I mention this now? Because Planet Money has an excellent retrospective this week on the teachings of behavioral economics, and particularly on the idea that winning an auction with a lot of bidders may mean little more than that you overpaid, since it simply demonstrates that all other actors in the crowd thought the asset wasn’t worth that amount or more. And as with many things these days, that point brought me right back to the risks to plan sponsors and fiduciaries from opening the gates to their 401(k) plans to allow private equity and other alternative assets into the plan’s investments. Are plan sponsors and fiduciaries really supposed to believe that their participants are being offered access to the assets before they are overinflated? Or, as the insights of behavioral finance would suggest, that it is instead because everyone else who already has access to acquiring those assets if they want them has concluded that they are overpriced relative to their risk and return? And if so, then are plan sponsors and fiduciaries being set up for future liability by effectively being little more at this point than the ones who decide for their participants to go ahead and win the auction for them, even though the auction shows they are overpriced? There are many ways to look at adding alternative assets to plans and the impact of doing so on plan fiduciaries – but none of them are or will be good until someone objectively demonstrates that doing so will increase returns to an extent that justifies any increased volatility or risk in participants’ holdings. Until that happens, plan fiduciaries will remain sitting ducks for litigation and should follow the safest possible course of action for protecting themselves against liability for allowing the asset class into a plan, as I discussed here.
  2. Insiders think the same thing, as this article points out.  ‘My honest assessment is it ends badly’ – NYC pensions’ CIO on retail investing.
  3. A consensus about AI in law seems to be forming, now that the hype cycle in which it was supposedly going to eliminate law firms has, unlike the law firms themselves, come to an end. In this Law.com article, Keith Maziarek addresses the point that AI may have a different value proposition in the provision of legal services than the longstanding assumption that it would reduce pricing. If you don’t have access to the article itself, the author does an excellent job of summing up his thesis in this LinkedIn post. He particularly points out that AI’s value may lie more in commodification of the routine parts of legal work and in improving access to the data needed to price more fairy or transparently, including possibly, as I have written elsewhere, by moving away from the crutch of the billable hour and on to more project based pricing models. I am glad to see this consensus forming, but since I have the receipts to prove it, this is basically what I have been saying since the start of the AI hype boom, such as here and here and here, among other places. My take has not been built so much on the specifics of AI itself, but from decades of seeing how technological improvements are deployed in the legal field – and the fact that it has led to larger and more profitable law firms, not to smaller firms providing less expensive product. As I discussed here, there isn’t a nefarious reason for this – it is instead because the technology has allowed for more complicated transactions and more sprawling litigation, which is expensive no matter how much tech you throw at the problem.
  4. When I started working on insurance coverage issues, the world was trying to determine the scope of insurance coverage for asbestos claims and then who should have to pay for Superfund cleanups, corporate polluters or instead their insurers. Now we are onto headlines that, back in those days, we couldn’t have imagined we would ever see, such as this one: “How CGL Policies May Respond To Novel AI Psychosis Claims,” in Law360. For decades, I have been helping clients predict whether new theories of liabilities or types of claims are likely to be covered by existing policy language, or whether new coverage terms needed to be developed to handle them. As you see in this article, that is still the approach, only now it feels like trying to view the 21st Century through the prism of the 1970s.
  5. UBS economists do not like the looks of the labor market. This is your periodic reminder from those of us who litigated ERISA breach of fiduciary duty and other claims during and after the Great Recession that, when job prospects weaken, employees and former employees start to look very carefully and very skeptically at the performance of retirement, 401(k) and other plans. We have already, in my own practice, been seeing the smarter money, which holds deferred comp benefits, looking carefully at those types of plans, as I discussed here.

ERISA litigation goes through phases and waves. It wasn’t that long ago that it seemed I was constantly litigating, in multiple cases, the distinction between so-called ministerial functions – which cannot support fiduciary liability – and fiduciary conduct. Here’s one example. Over time and a number of judicial decisions, an interpretative bulletin issued by the Department of Labor related to this issue was discussed and applied by enough courts that it effectively took on the force of law in some cases and, in others, at least became a shortcut for working through the issue. I always believed that this process by which the bulletin took on a judicial gloss and shine resulted, over time, in courts giving it too much persuasive weight.

In this interview with Bloomberg Law, I discussed the impact in litigation of a new advisory opinion by the Department, related to when an incentive compensation plan used by major financial institutions is or is not subject to ERISA. The article explains that the advisory opinion is on its way to winding through the courts to the Fourth Circuit. If the Fourth Circuit adopts its reasoning or conclusion, the opinion will be well on its way to repeating past history in which certain non-binding statements by the Department eventually take on the imprimatur of the courts and effectively become, at a minimum, highly persuasive authority to other courts addressing the issue.

Post-Loper, however, I don’t see that same process playing out here. If the Fourth Circuit agrees with the advisory opinion, the current state of play with regard to deference to agencies almost guarantees that the Court will present its opinion as its own analysis – and not as being heavily influenced, if at all, by the Department’s published opinion. I could see the advisory opinion being barely referenced in that circumstance, possibly simply dropped in passing into a footnote.

On the other hand, in the new, officially sanctioned post-Loper era of skepticism of agency action (I say officially sanctioned, because in truth, years of attacks on Chevron deference had long ago made it a dicey proposition to walk into court expecting a lack of skepticism over agency action, even though Chevron was still on the books at the time), if the Court finds that the plans are in fact subject to ERISA, which would be contrary to the advisory opinion, I could easily see the Court fully addressing and rejecting the reasoning and conclusion of the advisory opinion, in a manner intended to serve as persuasive authority on the question of its value.

Interesting times we live in, if you have long been involved with administrative regulation and related litigation.

This week, I cheated. I have known since Tuesday that I wasn’t going to have time to either blog or post on LinkedIn this week on even a small portion of the articles, ideas, podcasts and presentations that were crossing my desk and catching my eye. So I started writing this week’s Five Favorites for Friday three days ago, knowing that I would otherwise have way too many candidates for this post that I would have to cull through on Thursday to write this post.

For anyone new to this series, the back story can be found here – but in short, the Five Favorites for Friday post is my opportunity to write relatively briefly on five items from my inbox that I want to, but haven’t yet had the opportunity to, comment on.

So here are this week’s Fab Five:

  1. I am slightly late on this particular article, in that it wasn’t published this week. However, the conceit of this series is that it allows me to discuss things that crossed my literal or figurative desk and caught my eye in the past week, which this one did. Stephen Embry’s article on advanced AI weaponry for plaintiffs’ personal injury lawyers points out that the development could be a game changer for both the plaintiffs’ bar and the defense bar. I have written before, however, on my concern in the ERISA space with regard to what an AI powered plaintiffs’ class action bar suggests for ERISA plan sponsors, fiduciaries and their insurers – namely, the ability of more such shops to litigate more such cases, including against smaller plans that previously wouldn’t have justified the expense of suit, with the same or less investment and staffing. Other than the class action defense bar, more class action ERISA suits is the last thing that anyone on the defense side of the “v”or their insurers need. Whether it’s number of suits, settlement amounts, defense costs, or any other rubric, the trendlines in this area are already worrisome for plan sponsors and their insurers. The continued rollout of AI isn’t going to help.
  2. I really like insurance (as anyone who reads this blog can likely tell) and I love movies. So sue me. I really, however, have long been fascinated by movie stunt performers, ever since I worked as a pizza delivery driver as a teen in a shop run by a stuntman who had moved from Hollywood to the East Coast for a while because of a contentious divorce and custody battle back east. I have said before that I am really enjoying MS Amlin’s series of short films comparing underwriters to established movie stunt performers, and I really enjoyed the latest release.
  3. I am sure you know the old quote from the bank robber Willie Sutton, as to why he robbed banks – “Because that’s where the money is.” Forfeiture litigation, which is based on the theory that it violates ERISA for plan sponsors and fiduciaries to use employer contributions that revert to a plan when employees terminate employment to offset future contributions, is all the rage at the moment. As this article points out, the legal foundation for the claims is, to date, leaky, but there is a massive amount of money at issue. Right now, to me, the explosion in these types of cases represents large damages, still searching for a cause of action.
  4. This is a great story about First Brands, the risks of contagion and private equity. The story is an object lesson in why it is going to be extremely hard for plan fiduciaries to act prudently if they become charged with overseeing private equity and other alternative investment options in their 401(k) plans. My advice to plan fiduciaries confronting this issue is right here, and hasn’t changed since I wrote it.
  5. There was a lot of competition for the coveted fifth and final slot in this week’s Five Favorites for Friday. Among other candidates, I could have easily gone with this podcast on the changes AI will bring to liability standards in medical malpractice litigation, or this article detailing the growth in class action ERISA litigation in 2025, or a host of other worthy contenders. But instead I am going with this article on the status of cyber insurance and related developments in Asia. What I like most about it is that it illustrates the interrelationship between the growth of this line of insurance and real time developments in the world of cyber risk, including government efforts to protect against cyber exposures.