I noted the increase in ERISA litigation this year. By one count, there have been over 135 ERISA lawsuits filed this year. While that does not mean all of them have merit, it did make me ponder for a bit. Here are my thoughts:
1. Excessive Fee Lawsuits on the Rise
a. Class‑action filings increased in 2024. This continues in 2025.
b. Common claims: high record keeping fees, underperforming investments, adviser compensation.
c. Solution? Benchmark record keeping, TPA, and advisor fees, have a defendable and repeatable process for reviewing investments, and document all decisions.
2. Court Standards in Flux
a. Disputes continue over what plaintiffs must allege to survive dismissal (Hughes v. Northwestern guidance is unsettled).
b. The Supreme Court will weigh in on prohibited transaction pleading standards in Cunningham v. Cornell.
3. Forfeiture Practices Under Scrutiny
a. Lawsuits challenge employers’ use of forfeitures to offset company contributions.
b. Courts are split; plan document language is critical.
c. The issue I can’t wrap my head around is what do small plans do? Small 401k plans typically operate under a prototype plan document with no room for editing. If the plan document states that the Sponsor may use forfeiture money to pay plan expenses or lower employer contributions or distribute the money to participant accounts then the plan is allowing Sponsor discretion. Is the solution to have a plan document that states what must be done, no discretion?
4. Health Plan Litigation Expanding
a. New claims target pharmacy benefit and prescription drug arrangements (e.g., spread pricing, rebate handling).
b. Wellness program surcharges (like tobacco use) are being tested for HIPAA compliance.
5. DOL Fiduciary Rule Challenges
a. Efforts to expand the definition of “investment advice fiduciary” (especially regarding rollovers) face legal opposition.
b. Outcomes could alter fiduciary obligations for sponsors and advisors.
c. Questions: How can participants access objective help, free of conflicts of interest? How can advisors profitably provide that help?
Action Items for Sponsors
a. Benchmark Fees: Ensure record keeping, investment, and advisory fees are reasonable and well‑documented.
b. Review Plan Documents: Pay attention to forfeiture language and discretionary provisions.
c. Audit Health Plans: Confirm pharmacy benefit arrangements and wellness programs comply with HIPAA and nondiscrimination rules.
d. Stay Current: Monitor Supreme Court and DOL developments impacting fiduciary responsibilities.
The Parting Glass
Courts and regulators continue to focus on fees, fiduciary duties, and plan administration. Proactive governance and clear documentation remain the best defense for plan sponsors.