When defined contribution plans seek to dismiss ERISA complaints, 45% of the motions to dismiss are denied in full or in part by federal court judges, according to research by Callan LLC.
The consulting firm examined 165 ERISA complaints against DC plans filed between 2019 and mid-August 2022, covering plans with assets of $175 million or more.
It found that among 77 motions to dismiss, 20% were denied in their entirety by federal judges while 25% were partially denied, meaning the cases could go to trial on the remaining allegations. Fifty-five percent were dismissed.
The proliferation of ERISA lawsuits means defined contribution executives must continue to review fees, funds and services and make sure they document all decisions governing vendor selection and fees, according to Callan's research, which was published in a pair of October blog posts by Jana Steele, a Chicago-based senior vice president and DC consultant.
Callan also reported that 46 of the 165 cases ended in a settlement. "It took approximately two years to get to a settlement from the date the suit was filed," the firm said.
Given this litigation track record, "plan fiduciaries should have a robust and thoroughly documented process in all fiduciary decisions," Callan said. "It is important that plan fiduciaries follow the plan document and governance documentation. Plan fiduciaries should also consult with counsel, where appropriate."
Among the other findings, Callan reported that:
Noting the prevalence of lawsuits criticizing fees, managed accounts, revenue sharing and target-date funds, Callan recommended that sponsors conduct regular fee-benchmarking studies, negotiate fees, document the use of revenue-sharing or conduct RFPs. Sponsors should conduct a record-keeping RFP every five to seven years — or more frequently if there are significant changes to the plan, Callan said.
