Comp & Benefits and Employment Alert | July.28.2017
The last ten years have seen a proliferation of high-profile class actions alleging breach of ERISA fiduciary duties of prudence and loyalty against plan fiduciaries. The claims are usually based upon alleged excessive investment management fees, excessive plan recordkeeping and other administrative expenses, and poor performance of investment options selected by and retained in the plan's investment menu by the plan's fiduciaries. Many of these cases also include claims based on alleged prohibited transactions between a plan and its fiduciaries or parties in interest under ERISA section 406.
Application of the governing legal standards (adapted from the law of trusts) to these claims – performance of fiduciary duties solely in the interest of the plan's participants and beneficiaries and with the care and diligence "under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims (29 U.S.C. § 1104(a) – is flexible, imprecise and fact-intensive.
These cases usually settle after protracted and expensive litigation, with substantial awards of attorneys' fees to plaintiffs' counsel. "Plaintiffs Ramp Up 401(k) Lawsuits." The Wall Street Journal, July 14, 2017. For example, surviving aspects of both the Tibble and Tussey cases, referenced below, are still being litigated after ten years of motion and appellate practice. Accordingly, it is in the interest of plan sponsors and plan fiduciaries to take all reasonable steps to head off claims quickly if they are asserted. The following checklist is offered as a non-exclusive guide for those purposes.