Have you heard about all the lawsuits targeting employer-sponsored retirement plans lately? It seems like every week there is a new claim on yet another plan sponsor. In about an hour, I was able to find 20 separate cases with damage claims totaling in the hundreds of millions of dollars. So, what’s the deal with all these lawsuits? Who is bringing the lawsuits? Why are they suing? Do they have valid claims? Could your plan be a target?



There are two questions here. First, “Who is bringing these lawsuits”? And second, “Who are these lawsuits against?”


The bulk of these lawsuits, though not all of them, are being litigated by an attorney named Jerry Schlichter. Mr. Schlichter is a named partner at the Missouri-based firm of Schlichter Bogard & Denton. But that’s not the important part. The important part is that these lawsuits are on behalf of present and past participants, or employees, of the corporations being named as defendants.


In general, the corporations who sponsored the retirement plan are the ones being named as defendants. So for example in the case of Tussey v. ABB, the participants, led by Ronald C. Tussey, are suing ABB, Inc. along with the fiduciaries, pension committee, and benefit committee of ABB, Inc. In this particular case, Fidelity, a service provider on the plan, was also named as a defendant.


Other companies that have been targeted by these lawsuits include Edward Jones, Morgan Stanly, MIT, NYU, Yale, New York Life, Franklin Templeton, American Century, Boeing, Lockheed Martin, Ameriprise Financial, Kraft Foods, Cigna and many more.



The lawsuits bring into question the fiduciary duties of those responsible for employer-sponsored retirement plans. What is a fiduciary duty? Simply put, certain parties on the plan have a legal obligation to act in the sole interest of plan participants, and an obligation to act with care, skill, and prudence.


The plaintiffs argue that fiduciary duties were breached, plans were not properly benchmarked, expenses were not properly controlled, and conflicts of interest prevailed. Some of the specific offenses mentioned in these cases include administration costs, expensive investment options, improper share classes, inadequate investment options, underperforming funds, the presence of stable value funds, the absence of stable value funds, the float on interest, self-dealing, conflicts of interest, presence and performance of company stock in investment lineups, and excessive cash holdings.


These claims have resulted in large damage payouts and settlements in many cases. At least 4 of the cases had settlements or rulings that exceeded $30MM each.



In case it isn’t obvious, these cases are being litigated in the United States. Some have been tried in circuit or appellate courts, but at least one case advanced all the way to the United States Supreme Court. The Supreme Court, at the urging of the executive branch, agreed to hear the appeal on the Tibble v. Edison International case. In case you were wondering, the case was decided in favor of plan participants in a 9-0 unanimous decision.



These lawsuits are not only a recent occurrence. Several date back 8 to 10 years. The Tussey v. ABB suit was filed in 2006. The complaint was amended and the class was certified in 2007. The bench trial, however, did not occur until 2010. But, the alleged breaches of fiduciary duty and prudence date back to the year 2000. This case being one of the first major of these such occurrences, it took longer to litigate due to a lack of prevalent precedence.


Originally, it was thought that a statute of limitations would limit the time frame that employees had to make a claim regarding a fiduciary breach under ERISA, but the Tibble v. Edison case proved otherwise to a large degree.


Many other suits have since been filed, several of which have already been ruled upon or settled. But this is far from over. Many new suits have been filed recently or are in the works. What started in the mega plan space ($1B+ in plan assets) has since moved to address much smaller plans as well (including a $9MM plan earlier this year).



The Why is perhaps the most important part in these cases. Why are employees suing? Attorneys for the plaintiffs have been able to demonstrate significant damage to participants – particularly in regards to participant retirement savings. Fees in retirement accounts, both administration and investment fees, can dramatically reduce the value of a participant’s nest egg over time. A 1% difference in total fees can result in 20% less retirement savings over the course of a 30-year career.


The other question is, “Why did these fiduciary breaches ever happen?” There are hundreds of considerations, but I think that the majority can be summarized into a four primary reasons. 1) Retirement plans, and the regulations surrounding them, are incredibly complex. 2) Conflicts of interest plague the industry. 3) Most employers are not equipped to act as fiduciaries on their own. 4) Providers are not actively solving the problems in the industry.


This is especially evidenced by the fact that some of the largest financial service providers in the nation have been targeted over the handling of their own employee retirement plans! MassMutual, Ameriprise Financial, American Century, Franklin Templeton, New York Life, Edward Jones, Fidelity, and Morgan Stanley combined handle trillions of dollars in assets in mutual funds, retirement plans, and private wealth. If these 401(k) service providers aren’t even living up to the fiduciary standard with their own employees’ savings, what makes you think they will take care of yours?

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Spencer is currently the Chief Operating Officer for BenefitGuard. He joined BenefitGuard after receiving his MBA from Westminster College. He previously worked as a business consultant for several reputable law firms and start-ups throughout northern Utah. His passions include: business, investing, politics, economics, golf, college football, and family.

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