PLANADVISER - January/February 2021 - 22

regulatory & compliance | litigation
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PLANADVISER: Have plan fiduciaries and
the retirement plan industry overall learned
anything about risk or best practices for
running a retirement plan, based on the
decades of litigation-besides that it's lucrative
for the plaintiffs' bar?
Alison Douglass: From my experience, plan sponsors
have always taken their fiduciary role very
seriously, and the folks I've worked with have tried to do
what's in the best interest of participants. So I would note
that typically sponsors are not being sued because they had
a bad process. In fact, participants typically don't know what
the process involved is when they file these complaints, and
typically there is little if anything alleged in a complaint
about the actual process. So the fact that a case gets filed
generally says little about how a sponsor has been running
its plan. In my experience working with sponsors, both that
have been sued and those that have not been sued, they are
generally very diligent and have used very good processes
trying to get the best outcomes for their participants.
But the constant threat of litigation in the past 10 to 15
years has put more focus on process for many sponsors. In
particular, I see more emphasis on making sure the good
processes that sponsors already had been using were being
reflected in a solid written record. That's been a big takeaway
for fiduciaries as a result of the litigation.
PA: What impact could the pandemic have on ERISA litigation,
and should we expect another wave of stock drop lawsuits?
Douglass: We haven't seen as much direct correlation
between the pandemic and the litigation trends as
were anticipated in early 2020. There was concern that
pandemic-related market volatility would result in additional
litigation focused on investment performance. But,
in retrospect, while there were market losses early in the
pandemic, the markets were more stable than expected
early on, and that, combined with the fact that stock-droptype
litigation is hard to sustain under the legal standards,
has meant we haven't seen the uptick one might have originally
expected.
Apart from stock drop cases, however, we continue to
see many complaints that make allegations about investment
performance that aren't tied to any particular market
conditions. These tend to be the same performance-related
allegations we've now seen for 12, 13, 14 years. The plaintiff
lawyers will focus on the particular investments in a
plan, and the allegations tend to cherry-pick a particular
period of underperformance for a fund, and/or compare
a fund or a suite of funds with supposed alternatives in
the market that performed better. But regardless of
market conditions, courts have identified some real
concerns with those kinds of comparisons, to the
extent that they are comparing funds
that don't have the same strategy or
the same underlying allocations.
There are some real challenges to
those types of comparisons.
So while we haven't seen a lot of allegations
unique to pandemic market conditions,
we do see a continued trend of
complaints that attempt to make comparisons
between funds, from a performance
perspective, that aren't always the most apt
comparisons. And I do believe we can expect this
trend to continue.
PA: Do you anticipate seeing lawsuits with allegations related
to plan terminations, participant classification, handling of
CARES [Coronavirus Aid, Relief and Economic Security] Act
distributions, or other areas?
Douglass: We're not seeing litigation currently concerning
plan terminations or participant classifications or even the
handling of the CARES Act distributions. I'd note that when
it comes to more significant class action litigation, the cases
are economically viable for the plaintiffs' bar only if they're
amenable to class treatment. So to the extent that there are
issues that relate to only a subset of plan participants, those
may not be as attractive to the plaintiffs' bar to pursue.
PA: Have there been any cases or decisions involving advisers
or consultants from which advisers can learn?
Douglass: Advisers and consultants have not been a
significant target of litigation, although there have been
exceptions. There was a case against Banner Health in the
last several years regarding its 401(k) plan. It went to trial
last year against the sponsor. The plan's adviser was also
named a defendant in the case. The claims against the
adviser survived a motion to dismiss, and at the summary
judgment phase there was a split decision with respect
to the adviser, where the court essentially held that the
case could proceed against the adviser on claims related
to certain aspects of the plan as to which the adviser had
agreed in its contract to provide fiduciary advice, which
included a defined set of investment funds. Claims against
the adviser related to aspects of the plan as to which the
adviser did not agree to provide fiduciary advice-a mutual
fund window offered by the plan and the plan's recordkeeping
fees-were dismissed.
The takeaway for advisers from that case is the importance
of clarity in the contract regarding the scope of the
engagement. Ultimately, the adviser did settle that case,
so we don't have any lessons coming out of a trial decision,
but it is a key lesson for advisers that it's important to have
that clarity in the contract and to act consistently with the
contract, because the court did examine both the contract
and the adviser's conduct.
There have been other cases where advisers have been
named, and this may be something we see more of. In at least
one of the multiple employer plan cases filed this past year-
the one against ADP-an adviser is named. This adviser
has a motion to dismiss pending that essentially says the
complaint provides no detail about the advice the adviser
gave or why there's any issue with the advice. But cases such
as these often proceed to discovery on those issues.
22 | planadviser.com January-February 2021
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PLANADVISER - January/February 2021

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