Preventative Medicine for Your 401(k) and 403(b) Plan

December 10, 2020

By: William Pietragallo, II , Robert J. D’Anniballe, Jr.

Multiple new lawsuits have been filed since the start of 2020.  Complications caused by the Coronavirus have not slowed the onslaught of 401(k) fee litigation across the country. Last month, Teva Pharmaceuticals USA Inc. was the most recent company to make headlines with a multi-million-dollar settlement achieved prior to class certification, avoiding a costly trial and a potential $17.6 million damages award.

401(k) fee litigation typically involves allegations by a class of employees that the individuals tasked by the company with managing their retirement fund are not dutifully carrying out their obligations. As fiduciaries, these individuals must act prudently with all decisions made regarding the employees’ Plan. Common issues raised in this type of litigation are:

  • the inclusion of too many investment options;
  • inattentive and uneducated retirement committees;
  • self-dealing;
  • higher fees as a result of utilizing multiple record keepers; and
  • failure to frequently seek more cost-effective record keeping.

These are the same areas that would be scrutinized when the Department of Labor decides that they are auditing your company or organization’s plan. The DOL audits are increasing in frequency and severity.

Plaintiff’s attorneys have identified these lawsuits as veritable treasure troves. As such, they are actively soliciting potential class representatives in order to collect the windfall attorney fees that accompany the settlements. This year alone SunTrust settled a similar lawsuit for $29 million, Fidelity for $28.5 million, and McKinsey for $39.5 million, and these are major companies who made themselves vulnerable. This is not a new phenomenon, in 2019 ABB Inc. settled for $55 million and BB&T Corp for $24 million. In the past three years alone Bloomberg Law has found that total settlement awards in these types of lawsuits have totaled $449 million in 2019, $291 million in 2018, and $559 million in 2017.

403(b) litigation has also persisted during the Coronavirus with several new cases having been filed and settled primarily involving universities and healthcare organizations.  Mercy Health, MedStar Health, Sutter Health, and the University of Miami are just getting underway with litigation while universities such as Emory, Princeton, and Cornell all resolved in settlements for $16.75 million, $5.8 million, and $225,000 respectively. Although, the types of Defendants are different in 403(b) lawsuits the issues are generally the same as those seen in the 401(k) suits.

What was once viewed as a threat faced by only the largest plans, is now one for which smaller retirement funds need to be concerned. Plans valued as low as millions of dollars have now been targeted.  Plans with a mid-level range of assets such as Adidas and TriHealth Inc. have been sued with their plans valued at $630 million and $462 million. What is not changing is the high cost of defending against these lawsuits if caught unprepared.

So we ask, “Is your plan prepared for a lawsuit and/or Department of Labor Audit?”  If not, why not?

Our law firm’s Fiduciary and Pension Advisory Group led by Rob D’Anniballe has the depth and capability to conduct a preemptory audit of your plan and assist in the development, implementation, and maintenance of a well-documented prudent process.  Now is the time to act in order to avoid the pitfalls that expose you to litigation and adverse regulatory examinations.

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