The Supreme Court heard arguments this week in a 401(k) case against Edison International, one of several lawsuits that could widen fiduciary exposures in 2015 and beyond.
But lawyers and brokers don’t foresee another record-breaking year of severity in cases brought under the 1974 federal law protecting pension and employee-benefit plans. Last year, ERISA class action settlements topped $1.3 billion in 2014, almost 10 times greater than the 2013 aggregate, according to Seyfarth Shaw’s 11th Annual Workplace Class Action Litigation Report.
The 2014 total was boosted by several “mega-settlements,” including one for $480 million against Daimler Trucks North America, in which retired UAW workers alleged that the truck maker illegally cut benefits, and the $415 million settlement in Healthcare Strategies Inc. v. ING Life Insurance.
“These were cases that were in the pipeline already,” said Ian Morrison, a partner at Seyfarth Shaw and co-chair of the firm’s ERISA & Employee Benefits Litigation Practice Group. The cases themselves weren’t unusual, nor did they herald a new trend in severity, he told Advisen.
Kristin Kraeger, national D&O practice leader at Aon Risk Solutions’ financial services group, agreed.
“These were older cases settling now,” and they haven’t precipitated any pullback in coverage for fiduciaries of employment benefit plans, she told Advisen. The line of business “remains highly competitive from an underwriting and fee standpoint.”
Kraeger said the outlook for 2015 is also “stable,” but noted that a victory for plaintiffs in Tibble v. Edison International could potentially increase the number of suits against companies over management of retirement plans.
The case, involving Edison’s decision to offer more expensive versions of some funds as part of its 401(k) plan, also concerns the six-year statute of limitations under the Employee Retirement Income Security Act.
If the statute is not applied to funds that were included in the plan more than six years ago, the case could unleash a wave of similar filings.
“It matters,” said Morrison, because the administrators of retirement plans “make a fiduciary decision to go down a certain path at a point in time. This case could result in longer liability.”
He said this year and the next could also be interesting because of the Supreme Court’s June 2014 decision in Fifth Third Bancorp v. Dudenhoeffer, which scuttled a legal presumption in favor of ERISA fiduciaries in cases involving a company’s own stock.
Courts previously presumed that fiduciaries acted prudently in continuing to offer stock in the plan sponsor as a 401(k) investment unless plaintiffs could prove that company was about to collapse.
“There could be a burst of activity” in cases where a company’s stock drops significantly, Morrison said, especially in a market downturn.
Last but not least among the cases casting a long shadow is the 2011 Supreme Court decision in Cigna v. Amara, which opened the way for plaintiffs to seek “equitable relief” or damages beyond benefits that may be due when ERISA or benefit-plan terms have been violated.
All in all, ERISA class actions have “experienced a renaissance of sorts,” Seyfarth said in its report, especially compared to other areas of workplace litigation. That could be because the Supreme Court’s seminal 2011 Wal-Mart decision that made class certification more difficult applies to fewer cases involving employee-benefit plans.
“High courts are more receptive to class certification in ERISA cases,” Morrison said, because decision-making around a company’s benefit plan “is more centralized” than decisions concerning individual pay, as was the issue in Wal-Mart Stores Inc. v. Dukes.
