Are lawsuits against retirement plan fiduciaries few in proportion to the number of plans?

Many practitioners recognize the wave of lawsuits asserting a retirement plan’s fiduciary’s breach in allowing unreasonable expenses began with the Schlicter firm’s first few in 2006.

An insurance business’s infographic BenefitsLink helpfully points to shows an average of 83 fiduciary-breach lawsuits a year for 2019-2022. https://www.sompo-intl.com/wp-content/uploads/Fiduciary-lines-Excessive-Fee-Litigation-0323.pdf And it shows 625 lawsuits for 2010-2022.

For 2009-2021, the Labor department’s EFAST database shows an average of 833,722.4 Form 5500 reports a year. https://www.efast.dol.gov/5500search/) Year by year, some plans enter that count, some plans exit that count, and many plans continue over many years (and decades). Further, not all plans are pension or retirement plans, and of those not all are individual-account (defined-contribution) plans. (I confess I didn’t even try to sort the database.)

But extrapolating from these numbers and filling-in or assuming other facts, what’s our guesstimate of the percentage of individual-account retirement plans’ fiduciaries not sued?

Is it 99%?

With a few more filters the number of plans gets much lower.

For example, applying filters for Codes 2J (401(k) feature) and 2T (total or partial participation direction) for plan assets above $300 million (where ~90% of litigation occurs per their infographic) and the 2021 form year, the result is a little over 3,000 filings.

Not an exact count, but maybe closer to the universe of plans that may actually be sued.

EBECatty, thank you for your helpful sorting!

Even in the universe described, fiduciaries are not sued for almost 80% of plans.

If we filter for individual-account retirement plans but not by plan-assets size, might the percentage approach 99%?

How many fiduciary-breach lawsuits have there been on retirement plans:

below $300 million?

below $100 million?

below $50 million?

I’m an advocate for all plans’ fiduciaries putting more attention on one’s decision-making.

But I hope also that advisers might put the numbers of lawsuits, and which plans’ fiduciaries are likelier to be sued, in a sensible context.

Fiduciaries should “do the right thing” because it’s the right thing.

Here is another analysis https://1npdf11.onenorth.com/pdfrenderer.svc/v1/abcpdf11/GetRenderedPdfByUrl/01_05-ERISA-Litigation-Update.pdf/?url=https://www.goodwinlaw.com/pdf%2Fen%2Finsights%2Fnewsletters%2F2023%2F01%2F01_05-erisa-litigation-update

The Sompo is an insurance company and seems to be sounding a general alarm that the litigation is out of control and that other insurance companies have stopped writing coverage for plans. 

Goodwin is a law firm with an ERISA Litigation practice and seems to be noting trends that "smaller" plans are now being sued (although the smallest of the small plans are described as having under $250,000,000 in assets).

My takeaway is the success of lawsuits that picked the low fruit by suing the biggest of the big plans provided a road map for others to file lawsuits against mid-sizes plans.  On the other hand, the plans that have successfully defended themselves from lawsuits have provided a road map for a plan to follow to succeed in fending off litigation.  As the litigation continues, the courts also seem to have more precedents that guide them to earlier dismissals of the copycat suits.  Hopefully, we reach the point where plans that do not fulfill their obligations to participants are held accountable, and plans that do fulfill their obligations are not alone in the fight against predatory lawsuits.

My personal view is this speaks to opportunities for ERISA attorneys (and I am not an ERISA attorney) to educate plan sponsors and service providers on best practices and risk management.

“Twenty-eight suits—approximately a third of the total suits in 2022—were filed concerning plans with under a billion dollars in assets. Of those 28 suits, 19 concerned plans with under $750 million in assets, 14 concerned plans at or under $500 million, and three concerned plans under $250 million.”

So, somewhat down-market from the earliest waves, but still not nearing small-business plans.

From the courts’ decisions (despite that almost all of them are about before-trial phases), advisers—whether lawyers, investment advisers, or others—have a wider range of stories to use in showing fiduciaries ways to meet their responsibilities.

15 hours ago, Peter Gulia said:

Fiduciaries should “do the right thing” because it’s the right thing.

Yes!!! But sadly, for some fiduciaries, only the threat of PERSONAL liability for a fiduciary breach keeps them in line. This is one of the things we emphasize when a plan fiduciary seem disinclined to follow the rules, and it is usually the one thing that finally moves them to comply - seems to work far better than the possibility of IRS penalties.

2 hours ago, Belgarath said:

for some fiduciaries, only the threat of PERSONAL liability for a fiduciary breach keeps them in line.

We have had similar conversations.  We point out that not only is there a threat of personal liability, we also note that their ERISA fidelity bond does not cover their fiduciary liability.