The rash of 401k, and now 403b, lawsuits is spawning a new business opportunity for attorneys – defending these lawsuits. BNA reports that the recent wave of more than 100 lawsuits against defined contribution (DC) plans is creating opportunities for a select few law firms.
The firm of Morgan Lewis & Bockius is defending 19 plan sponsors targeted by the plaintiff’s bar including Johns Hopkins, University of Pennsylvania, Fujitsu and Honeywell while O’Melveny & Meyers represents 12 plans including Morgan Stanley, MIT, Fidelity, Franklin Resources, CVS and Disney. Among boutique firms that specialize in employee benefits, Groom Law Group is leading the pack with four clients.
Lawsuits against DC plan sponsors was pioneered by Schlichter Bogard & Denton based out of St. Louis which started with excessive fee cases alleging that plan sponsors were asleep at the switch with others alleging violation of the sole benefit rule where some companies, especially money managers, have been targeted for the use of proprietary funds. New concepts for these cases have started with suits against stable value funds while other experts believe that target date funds are next.
The DOL conflict of interest rule is expected to only increase these lawsuits as class actions suits will be harder to prohibit and making more advisors act as fiduciaries only increases the likelihood for legal action against them and their broker dealer or RIA. As plaintiffs’ attorneys targeting larger plans find success, suits against smaller plans are expected to grow with a case in Ohio against a $25 million DC plan pending while the suit against a $9 million plan in Minnesota by a local law firm was withdrawn.
So are these lawsuits all bad? Though the cost to defend these cases can lead some smaller companies to wonder whether it’s even worth it to have a 401k plan, there is the opportunity for fiduciary insurance which is relatively inexpensive and it could drive more companies to hire plan advisors based on their experience, knowledge and training rather than a prior relationship. And excessive fee cases with be another nail in the coffin of revenue sharing and the use of confusing multiple share classes.
