In what used to be a backwater area of the law, 401k lawsuits, or even broader, ERISA lawsuits against 401k and 403b plan sponsors and providers are heating up with one case dismissed against TIAA, another against Insperity and Reliance Trust going forward while the famous Tussey v. ABB was remanded. With 19 lawsuits filed in the past three years and the fiduciary landscape shifting as a result of a DOL rule, lawyers see real opportunity in defined contribution plans (DC) like 401ks and 403bs.
Insperity is an HR outsourcer providing record keeping services to the $2 billion PEO 401k it runs. Plaintiffs represented by the St. Louis based Schlichter law firm claimed excessive fees were charged and that the target date funds offered by Reliance Trust were untested, poor performers with high fees. Though the federal court refused to dismiss the case, it did dismiss claims that stable value funds, rather than money market, should have been used and it disallowed disgorgement of profit claims.
TIAA dodged a bullet because even though they are the record keeper and annuity provider of plans they run for the University of Chicago and Nova, the claims of excessive fees paid to itself through revenue sharing while not allowing payments to other providers were dismissed because there was no proof that TIAA acted as a fiduciary under ERISA.
Meanwhile, the famous Tussey Case was remanded by a federal appeals court to review the plaintiff’s damages claims which also means that attorney’s fees awarded to the Schlichter law firm are on hold.
Though the DOL fiduciary rule may be delayed, the definition of who is and who is not a fiduciary will greatly expand if the rule is eventually implemented as most believe. It seems that courts are reluctant to question industry practices, like whether money market funds in a low interest environment are appropriate, but they are concerned about provider self-dealing or practices that appear to benefit the party making decisions like with Insperity and the many lawsuits against mutual fund companies that allegedly used their employees’ 401k plans to seed new and untested funds.
With limitations on class actions by the DOL fiduciary rule, we can expect more law firms jumping into the fray especially during the next market correction.
