Weeding Out Claims?



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. Read on for key points from recent analysis.


Statistics Confirm Losses

401k Specialist reports on the challenges retirement plan sponsors continue to experience in defending themselves against claims of fiduciary breaches under ERISA standards:


If you thought a heightened pleading standard in ERISA breach of fiduciary duty claims based on the fees or performance of funds in 401(k) and 403(b) plans was helping plan sponsors beat back these lawsuits, think again.According to Euclid Fiduciary’s Mid-Year Review of Excess Fee and Performance Litigation, released on Aug. 1 in a blog post by Daniel Aronowitz, the statistics tell a different story. “The actual year-to-date results [through July 31, 2023] reveal that plan sponsors are only winning approximately 30% of dismissal motions—even less than the 35% success rate from the prior year,” writes Aronowitz, Managing Principal and Owner of Euclid Fiduciary. “Yet even that is not the whole story, as most of those dismissals are pyrrhic victories, because plaintiff law firms nearly always amend the complaint and the litigation continues.”


Unfortunately, although motion to dismiss continues to be an “imperfect and weak tool for plan sponsors in combating excess fee and performance cases,” fiduciary experts point out: “Given how difficult it is to win summary judgment in these cases, we have no choice but to continue the long slog of advocating for a pleading standard that weeds out meritless cases.” Allegations are not an automatic indication of wrongdoing, but plan sponsors and other fiduciaries named in lawsuits quickly learn that mounting a defense is expensive and burdensome, becoming only more so as cases tend to slog along for years. Experts agree that proactive protection is 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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Viable Claim?

Theoretically, allegations of excessive fees and or the underperformance of funds associated with employer sponsored retired plans are now supposed to be subject to “heightened standards.” However, as Brian Anderson reports, this is not the reality, with the majority of claims surviving motions to dismiss:


To state a viable claim in these cases based on fees or performance, a plaintiff must, among other things, allege “a meaningful benchmark” against which to compare the cost and performance of the plan’s funds, notes an Aug. 3 brief from Dorsey & Whitney LLP. Many courts will reject a proposed benchmark unless it (1) provides an “apples” to “apples” comparison to funds with similar investment aims and strategies and (2) reflects the market generally, as opposed to cherry-picked examples of funds with lower fees or higher returns.Despite this heightened standard, many recent excessive fees cases are surviving Rule 12 motions to dismiss. “The results show that most excessive fee and imprudent investment cases survive a motion to dismiss,” Aronowitz writes. “And even when certain claims are dismissed at the pleading stage, it rarely reduces the damages model enough to reduce the settlement leverage created in these cases.”


A scan of recent ERISA lawsuits underscores an additional, frightening reality: essentially anyone, and everyone, involved in the management and administration of a retirement plan can be personally named in allegations. Indeed, 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. As law experts remind us: “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.” 


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 if a case gets to trial. 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 costs and penalty limits up to $1,000,000. Uniquely, Colonial even includes Cyber Liability Insurance, locks in multi-year rates and offers installation payments. Cover yourself, today:


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