New Theories of Liability



New trends in claims against retirement plans (and their fiduciaries) include allegations of imprudence related to investment fund choices. Even as excessive fee litigation claims brought in 2022 continue to clog up courts, new angles for ERISA lawsuits are being attempted. Experts share analysis of the latest litigation trends.


Allegations of Imprudence

With excessive fee cases previously filed still unfolding, analysts point to a new argument increasingly being attempted on behalf of retirement plan participants. As Alex Ortolani reports in Plan Sponsor:


Among new claims, trends include claims about providers making income from plan participant assets and allegations of imprudence resulting from providers choosing investment funds in the wrong share class….The plaintiff law firms are also introducing “new theories of liability” that allege imprudence against plan sponsors who do not monitor interest float and other indirect income being made by recordkeepers….The first float claims were included in four complaints by Wenzel Fenton, then copied by another law firm…. In Barner v. McLane Co. Inc., the plaintiff alleges that investment firm Merrill Lynch allowed participant deposits or money withdrawn from the plan from individual accounts to first pass through a Merrill clearing account, with Merrill allegedly being able to keep “millions of dollars” from investment earnings and interest.


Excessive Fee Complaints With a New Twist

Despite hopes that a heightened standard for excessive fee claims would result in plan sponsors winning more motions for the dismissal of ERISA lawsuits, the fact is: plan sponsors are losing even more motions to dismiss this year, than last. Perhaps even more alarming, as  defense experts point out, are new tactics in play in support of claims:


Whereas many historical excess fee filings have used artificially inflated fee data and misleading comparisons, these new firms assert somewhat more credible recordkeeping fee claims based on plan services, and some complaints even include participant fee disclosures with accurate fees charged to participants….Many excess fee complaints base their case on Form 5500 filings, dividing plan size by number of participants, which…is often “inflated or just plain wrong….Firms Wenzel and Christina Humphrey…filed complaints using participant fee disclosures, which…are more accurate. We consider this historic for the excess fee genre, as most law firms pretend that there is some kind of mystery as to what participants pay for recordkeeping….Plaintiff firms know that share class claims are the most difficult claims to dismiss at the pleading stage and will remain a staple of excessive investment fee claims….



Importantly, plan sponsors need to know that under the extensive and high standards of ERISA, the “listed plan fiduciary” is not the only individual who can be held responsible for errors, actual or alleged, related to a company sponsored retirement plan. Indeed,  law experts provide this timely reminder that anyone and everyone involved in the plan can be held personally accountable: “An entity is a fiduciary with respect to an ERISA plan to the extent that it has any discretionary authority or discretionary responsibility in the administration of the plan. Anyone who exercises discretionary control or authority over the plan’s management, administration, or assets is an ERISA fiduciary even if that person is not listed as a plan fiduciary….”


Although allegations are not an automatic indication of wrongdoing, plan sponsors and other fiduciaries named in lawsuits quickly learn that mounting a defense is expensive and burdensome, becoming only more so as cases slog along for years. With dismissal a  dim hope, experts agree that proactive protection is now the wisest move for plan sponsors, and Colonial Surety is here to help with affordable Fiduciary Liability Insurance. Armed with this coverage, for a few dollars a day, you’ll have coverage for defense costs and penalty limits up to $1,000,000 if faced with alleged or actual breaches of duty in connection with the employee retirement plan. Cyber Liability coverage is included at no extra cost, providing additional protection–for the plan and your companyagainst regulatory actions related to data and privacy, as well as expert response services.


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Good To Know

Daniel Aronowitz, Managing Principal of Euclid Fiduciary underscores the difficulties all fiduciaries confront during litigation, pointing out: “You can have the best process in the world, but plaintiff’s lawyers are good at making defendants look dumb….You have to prove a good process to the judge and it can be very difficult to do….”


Don’t shoulder the risks alone: with Colonial Surety’s affordable coverage, in the event of claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll have defense, plus cyber liability Insurance  Colonial even locks in multi-year rates and offers installation payments. Cover yourself, today:


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