Goodwin Insights March 31, 2021

Q+A With Goodwin’s ERISA Litigation Group

Goodwin’s ERISA Litigation practice has defended — and defeated — high-profile ERISA claims at both the trial and appellate levels, as well as in administrative and arbitral proceedings. The group’s success has earned it a ranking on The Legal 500 United States and practice chair Jamie Fleckner has been named a 2020 BTI Client Service All-Star for his unmatched dedication to clients and impeccable knowledge and skillset needed to meet any of their needs.

Our client relations team recently sat down with practice chair Jamie Fleckner and Alison Douglass to discuss the latest trends in ERISA litigation and what clients need to know.

What are some of the issues that Goodwin’s ERISA Litigation practice has focused on recently?

Jamie: Our practice has seen a noticeable uptick in so-called “excessive fee” litigation. The Employee Retirement Income Security Act of 1974, as amended, governs certain employee benefit plans and requires fiduciaries to act prudently and loyally — in the interest of plan participants. Plaintiffs in excessive fee litigation typically allege that 401(k) plan fiduciaries have breached their obligations by including investment options in 401(k) plans that underperform and have excessively high fees, and/or paying those plan’s recordkeepers and advisors excessive fees.

Our ERISA team is led by Alison Douglass and myself. Alison and I have decades of experience litigating ERISA cases, including excessive fee cases, on behalf of some of the largest plan sponsors and financial service providers in the country. We are supported by a deep bench of partners and associates with years of experience in ERISA litigation, our seasoned ERISA counselling group, and our specialty appellate group, who have handled ERISA litigation appeals and filed amicus briefs in federal circuit courts across the country and before the U.S. Supreme Court.

Alison: In addition to excessive fee litigation, our team also has a wealth of experience handling ERISA class action litigation involving employee stock ownership plans (“ESOP”), benefits claims, and the calculation of annuity benefits, among others. We also put our wide-ranging ERISA experience to work to advise plan sponsors about ways to minimize the risk of ERISA suits being filed against them, and counsel clients who are undergoing U.S. Department of Labor investigations.

What are some trends that are most pressing for clients in the world of ERISA Litigation?

Alison: Excessive fee litigation exploded in 2020. Over 100 excessive fee cases were filed in 2020 — more than three times the number of cases filed in 2019.

Over the last several years, settlements in these cases averaged more than $231 million per year in 2018 and 2019, and 2020 settlements rose even higher, resulting in an increased interest by plaintiff’s attorneys in the space. In 2020, the lion’s share of excessive fee cases were filed by plaintiff’s firms who were new to this arena of ERISA litigation. Given the increased volume, one key trend we have seen this year is that smaller plans have been targeted. Traditionally, plans with roughly $1 billion (or more) in assets have been targeted. In 2020, we saw suits filed against plans with less than $200 million in assets.

Jamie: Although we continue to see plaintiffs asserting “typical” excessive fee allegations, we have also seen plaintiffs attempt to expand their horizons. Some examples of these new types of allegations include:

  • Use of Recordkeeper’s Proprietary Funds: In past years, plaintiffs have challenged financial service company plan sponsors’ inclusion of their own mutual funds in their 401(k) plans as being imprudent and disloyal. In 2020, plaintiffs have increasingly challenged plans’ inclusion of investments managed by plans’ recordkeepers’ as disloyal and imprudent for the same reason.
  • “Cross-Selling” Participant Data: Plaintiffs argue that plan participant data, such as age and contact information, are “plan assets” within the meaning of ERISA. Plaintiffs now allege that, when service providers market services to plan participants using that data, they are misusing that data.
  • Managed Account Services: Plaintiffs have challenged the use (and related expense) of managed account products, such as products that help automatically select 401(k) plan investments.

What are some big wins from recent years that the practice is proud of?

Alison: Our ERISA litigation group had a big win in Wildman v. American Century, which was tried to verdict in the U.S. District Court for the Western District of Missouri. It’s unusual for a case like this to go to trial because excessive fee cases — and ERISA cases more broadly — are typically dismissed at an early stage or settled. But Wildman was one of the few exceptions, and our ERISA litigation team won a complete defense verdict.

This case involved a 401(k) plan that was entirely made up of American Century proprietary funds. The plaintiff alleged that, by doing so, the plan and its fiduciaries placed American Century’s interests ahead of the interests of plan participants.

The court strongly disagreed though, finding that the fiduciaries’ careful examination of the plan’s investment options satisfied their duties of prudence and loyalty. The court considered the “totality of the circumstances” prevailing at the time, and accepted evidence that the fiduciaries regularly employed an appropriate process to determine whether investment options were prudent to include as plan options, even where cheaper investment alternatives may have been available.

Jamie: Indeed, the court held that plan participants benefitted from the plan’s inclusion of proprietary funds because, as American Century employees, they “were familiar with American Century’s funds.” American Century’s proprietary funds were appropriate options for plan participants, in part, because they were American Century proprietary funds. Far from being detrimental to plan participants, the court concluded that participants benefitted from the plan structure because the fiduciaries, as American Century employees, “were familiar with the funds offered by American Century,” and “had the ability to more closely monitor their investments, and received direct access to fund managers for consultation.”

We are proud to have successfully litigated one of the few cases in the space to go to trial. It was a true team effort and has served as helpful precedent for fiduciaries litigating excessive fee cases across the country.

With ERISA litigation on the rise, what signs should companies be alert to for indications that an ERISA lawsuit could be coming?

Jamie: There are a couple of indications that an ERISA lawsuit may be coming. First, the companies’ employees may receive solicitations from plaintiffs’ firms asking employees to contact them if they have concerns regarding the companies’ benefit plans or wish to receive more information about an investigation the lawyers may be conducting into those plans. These solicitations may be sent by mail or by social media, such as LinkedIn or Facebook. Generally, the goal of these solicitations is to identify individuals that may be willing to serve as class representatives in a putative class action regarding the companies’ defined contribution plan. These solicitations are often the first indication that a suit may be coming. Contacting Goodwin’s ERISA Litigation practice when these solicitations are brought to your attention can help you determine how likely it is for the solicitations to proceed to a lawsuit and what your exposure may be.

Alison: Second, once potential class representatives are located, the company may receive a letter from one or more of those individuals asking for documents regarding the plan at issue. 29 U.S.C. § 1024(b), also known as ERISA § 104(b), allows ERISA plan participants to request from the plan’s administrator copies of documents such as the plan’s governing document, summary plan description, and trust agreement. The plaintiff’s firms often use the documents provided to determine whether they should proceed with a suit and, if they decide to file suit, to add more detailed allegations to their complaint in hopes of surviving a motion to dismiss. Goodwin’s ERISA Litigation practice has extensive experience negotiating and narrowing the scope of documents that need to be turned over, as plaintiff’s firms often seek documents beyond the scope of those that they are entitled to under ERISA § 104(b) in order to obtain earlier discovery than would be permitted under the Federal Rules of Civil Procedure.