Chubb asked the ERISA-experienced law firm of Morgan Lewis & Bockius, LLP, along with Alison L . Martin of Chubb’s Specialty Claims Department, to write this free booklet to help customers and brokers understand the potential liability that fiduciaries face in today’s litigious environment. Some of the most significant litigation concerning retirement plans includes:
- “Stock drop” (Enron-style) cases under defined contribution (ESOP and 401(k)) plans, alleging plan fiduciaries acted imprudently in offering an employer stock fund or misrepresented the risks associated with investments in a plan sponsor’s stock;
- “Fees and expense” cases alleging that the plan fiduciaries breached their obligations to the plan and its participants by charging or permitting excessive fees and expenses for plan services provided by third parties, such as investment management, recordkeeping, and asset custody;
- Investment imprudence cases alleging that plan fiduciaries breached their duties to invest plan assets prudently, breached their duty of loyalty, had conflicts of interest, and/or engaged in prohibited transactions;
- “Anti-cutback” cases alleging that benefits (such as severance or pension adders) were promised and vested under the plan document and improperly cut back in anticipation of a change in control or during a time of corporate penury;
- Claims that plan administrators have otherwise acted in contravention of plan or statutory provisions, such as violating plan rules limiting which expenses the plan can pay or the kinds of distributions the plan may make, or violating the statutory benefit accrual or vesting rules; and
- “Cash balance” cases alleging that the cash balance pension plan itself violates ERISA prohibitions against age discrimination, or results in unfair annuity calculations or inappropriate benefit freezes upon conversion.
- Class action welfare plan cases which can also take various forms, including:
- Retiree medical cases alleging that the plan sponsor or the plan fiduciaries improperly changed or terminated post-retirement medical benefits; and
- Medical premium cases alleging that premiums are excessive or that fiduciaries breached their duties by failing to apply sufficient scrutiny to the cost structure attendant to benefits.
- Miscellaneous class action claims involving benefit plans, including:
- ESOP claims alleging stock was improperly valued, plan fiduciaries engaged in prohibited transactions or other conflicts of interest, and/or corporate changes disadvantaged ESOP participants;
- Misrepresentation or omission claims, such as that the employer failed to inform employees it was about to adopt severance or early retirement benefit improvements that were under “serious consideration” at the time of their separation or retirement;
- “Alternative” worker claims alleging that some workers (such as independent contractors and leased employees) were inappropriately excluded from plan participation;
- Long-term disability plan claims alleging that the plans were not administered in accordance with their terms (e .g ., terms offsetting Workers’ Compensation and other benefits received under other benefit programs); and
- “Discrimination” or retaliation claims, under ERISA Section 510, alleging that groups of individuals were selected for adverse employment actions (such as layoffs or termination of employee status while on disability) in order to prevent them from becoming eligible for or receiving medical and/or other benefits.
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