Instances of fiduciary litigation are increasing, as are related costs. Indeed, settlements in class action employee benefit suits rose from $291 million in 2018 to $449 million in 2019. Most of these lawsuits were related to purported contraventions of the ERISA law of 1974, which outlined the obligations of fiduciaries to employee benefit plan participants and their beneficiaries. Below are three examples of ERISA violations.
1) Excessive Fees
The law requires that fiduciaries select investments that do not charge unreasonable fees for services. In 2020, for instance, a court found that a major investment firm had failed to adequately monitor the fees associated with its own 401(k) plan and awarded the plaintiffs $12.5M.
2) Irresponsible Investment Choices
While ERISA doesn’t provide fiduciaries with specific instructions for choosing investments, it does stipulate that they should act to minimize the risk of poor performance and significant losses. For example, a recent fiduciary claims case resulted in a $3.25M settlement when employees alleged that they were advised to place their funds in an investment product that was guaranteed by a failing insurance company.
Self-dealing occurs when fiduciaries act in their own interest rather than in the interest of beneficiaries. In one such case in 2018, employees of a major multinational investment bank claimed that their 401(k) plan contained too many high-fee, low-performance products that were affiliated with the bank itself. The settlement awarded totaled $29.1M.
As can be seen by these examples, fiduciary litigation can be very costly. Notably, these figures don’t reflect the legal fees associated with these cases. Having a comprehensive fiduciary policy to cover these expenses can offer vital protection and peace of mind.