‘Pension Predators’ Hearing Targets Abusive ERISA Lawsuits
A panel of expert witnesses testified Tuesday before the House Education and Workforce Committee’s Subcommittee on Health, Employment, Labor, and Pensions at a hearing titled, “Pension Predators: Stopping Class Action Abuse Against Workers’ Retirement.”
Health, Employment, Labor, and Pensions Subcommittee Chairman Rick Allen (R-GA) called the hearing to explore what he terms abusive litigation affecting employee benefit plans.
“Today’s hearing is about protecting the retirement savings of American workers—and the employers who voluntarily maintain retirement savings and other employee benefit plans—from baseless predatory class action lawsuits,” Allen said in prepared opening remarks.
He noted that the Employee Retirement Income Security Act (ERISA) helps protect retirement, health, and other benefits for more than 155 million workers, retirees, and their family members, adding that altogether these plans hold more than $14 trillion, helping millions of Americans save for the future and stay financially secure.
“These assets represent the savings and contributions of workers and their employers. But make no mistake, such a large pool of assets is attracting predatory lawyers who are targeting employee benefit plans for easy, quick-money, sue-and-settle lawsuits,” Allen said. “I want to thank our witnesses today who have front-line experience fending off meritless, quick-money lawsuits from class-action attorneys.”
Allen said he wanted the witnesses to address whether these lawsuits are actually helping to protect American workers or whether they were just lining the pockets of plaintiff lawyers, and how the lawsuits are impacting the way ERISA plans work.
During the hearing, the subcommittee heard from the following witnesses:
• Andrew Salek-Raham, Principal, Groom Law Group
• Lynn Dudley, Senior Vice President, Global Retirement and Compensation Policy, American Benefits Council
• William Alvarado Rivera, Senior Vice President of Litigation, AARP Foundation
• Glenn Butash, Chair of the ERIC Legal Center, The ERISA Industry Committee
During his testimony, Butash offered potential litigation reforms critical to protecting the integrity of benefit plans sponsored by employers and unions governed by ERISA.
“Over the past 15 years, the plaintiffs’ bar has exploited ERISA’s civil enforcement provisions as a weapon by opportunistically attacking large plan sponsors and fiduciaries in a systematic way,” said Butash. “ERIC has no quarrel with plan participants pursuing well-founded claims permitted under ERISA. But too often the cases we see are expensive fishing expeditions by lawyers seeking settlements from deep-pocketed corporate plan sponsors. Their timing, approach, and grounds follow a formulaic playbook. Plan sponsors are forced to divert time to fight suits that is better spent hiring workers and improving benefits. We need a balanced solution to end this abuse, and ERIC is prepared to work with Congress to achieve that goal.”
Butash went on to express support for responsible reforms designed to strike a “careful balance” to ensure that meritorious ERISA cases may continue to be brought, while weeding out frivolous or unfounded, cookie-cutter allegations.
According to a recently filed Supreme Court brief by fiduciary liability insurance underwriter Encore Fiduciary, over half of plans with more than $1 billion in assets have been targeted by at least one excessive fee or investment performance lawsuit since 2016. Plans with $500 million or more in assets have close to a 10% chance of being sued in a given year. And while some class action settlements are large, many result in incredibly small recoveries for actual plan participants, as most of the money is paid for attorney’s fees, expenses, and payments to the named plaintiffs.
In an exchange with Rep. Ryan Mackenzie (R-PA), Butash shared the disturbing trend of lawsuits he has seen in his career. “[These lawsuits] seem to be largely brought by a handful of the same law firms. So they are recycling the same pleading against deep-pocketed defendants or large plans in the [effort] of getting a quick settlement,” Butash said.
The full testimony provided by Butash can be viewed here.
Chairman Tim Walberg (R-MI) asked witnesses how the rash of ERISA lawsuits threaten retirees’ ability to get high-quality plans and services. “We recently conducted an informal survey of our plan sponsor members and almost 89% of the [sponsors] noted that the risk of litigation is a significant factor in their decision to offer services and investment options or products to their participants,” said witness Dudley from the American Benefits Council. “The risk of litigation is impacting plan sponsors and their decision and ability to offer a wider range of services and benefits to their participants—and that hurts participants, that hurts everybody.”
Rep. Randy Fine (R-FL) discussed how his recently proposed legislation, the ERISA Litigation Reform Act, seeks to curtail meritless lawsuits. “There are bad actors that need to be sued, but there are also plenty of bad lawyers who take advantage of the system. What my bill intends to do is to strike that balance to give people the opportunity to sue when that bad [action] does take place but also to protect people from having their retirement savings sucked away from unscrupulous lawyers,” Fine said.
Democrats say GOP focus misplaced
Democrats on the subcommittee expressed deep concern about subcommittee’s agenda, and “particularly its focus on prioritizing the interests of corporations over American workers and their retirement security,” Ranking Member Rep. Mark DeSaulnier (D-CA) said in his opening remarks.
DeSaulnier used his opening remarks to argue that the Subcommittee’s focus on “pension predators” is misplaced, warning that current efforts risk undermining workers’ legal rights under ERISA. He criticized ongoing attempts by Committee Republicans to roll back the Supreme Court’s unanimous Cunningham v. Cornell decision—which affirmed workers’ ability to bring fee-related claims in court—and emphasized that ERISA class actions remain rare relative to the number of retirement plans. DeSaulnier said the real issue is chronic underfunding of EBSA, not frivolous lawsuits, and urged lawmakers to strengthen workers’ access to justice rather than erect new barriers. He highlighted his own bill, the Employee and Retiree Access to Justice Act, as an example of the protections Congress should be advancing.
“No one wants frivolous lawsuits. But if we follow the regulations and fund the investigators and the enforcement arm, we wouldn’t have to deal with the lawsuits,” DeSaulnier said.
ARA, IRI submit statements
On Dec. 2, the American Retirement Association submitted a Statement for the Record to the House Health, Employment, Labor, and Pension Subcommittee of the Education and Workforce Committee for inclusion in the record for the hearing.
In the statement, ARA told lawmakers that a wave of formulaic ERISA class-action lawsuits is discouraging plan innovation and diverting resources away from participant benefits. ARA argued that the Supreme Court’s Cunningham v. Cornell decision has made it even easier for plaintiffs to bring prohibited-transaction claims without demonstrating whether routine statutory exemptions apply, increasing costly litigation risk for compliant fiduciaries. ARA urged Congress to restore balance by tightening pleading standards and limiting premature discovery, saying current trends threaten plan innovation, employer participation, and overall retirement security.
“Without reform, the current trajectory threatens to impose increasing costs on retirement plan sponsors, discourage employers from offering or maintaining plans, and ultimately diminish retirement security for American workers. The chilling effect on innovation will only intensify as sponsors become more risk averse in the face of unpredictable litigation exposure,” the ARA statement concluded. “Thoughtful reform can preserve participants’ rights while reducing abusive litigation practices that impose unnecessary burdens on compliant fiduciaries and divert resources that could otherwise enhance retirement outcomes.”
The Insured Retirement Institute (IRI) also submitted a written statement for inclusion in the record for the hearing. IRI’s statement focused on the ongoing legal uncertainty created by frivolous ERISA litigation over the treatment of insurance company general account products.
From IRI’s statement by Paul Richman, Chief Government and Political Affairs Officer and Jason Berkowitz, Chief Legal and Regulatory Affairs Officer at IRI:
“The real casualties of these frivolous lawsuits are individual retirement savers. The looming risk of litigation has caused retirement plan providers to restrict investment options and shy away from adopting innovative features that could greatly benefit participants. This cautious approach jeopardizes the financial futures of plan participants. It is essential for Congress to address these legal risks head-on to safeguard the economic well-being of plan participants and empower them to build robust retirement accounts for their future.
“We stand ready to work with you to advance the General Accounts Product Clarifications Act or other potential legislative solutions that will ensure retirement savers have ongoing access to principal protection and stable value investments that provide and deliver consistent, guaranteed, reliable income throughout an individual’s retirement years.”
Tuesday’s hearing can be viewed in its entirety at this link: https://www.youtube.com/live/S5kBri2-OUE
SEE ALSO:
• Lawmaker Introduces Bill Supporting Pleading Standards for ERISA Suits
• Fifth Circuit Acts Quickly in Granting EBSA Request to Dismiss Fiduciary Rule Appeals
• Bipartisan Bill to Streamline 401(k) Distribution Options, Expand In-Service Rollover Choices is Back
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
