You can no longer purchase Roundup at your local hardware store. Bayer pulled the product because of class action litigation falsely claiming that the herbicide causes cancer. Every regulatory body that has studied glyphosate, the active compound in Roundup, has found it to be safe and not a carcinogen, including the Environmental Protection Industry, the European Food Safety Authority, the European Chemicals Agency, and regulators in Canada, New Zealand, Japan and Australia – with the single exception of the International Agency for Research on Cancer. But that entity has also studied several hundred other compounds, finding only one that is not a potential cause of cancer.
The plaintiff trial bar and their junk science eliminated a quality product. If plaintiff lawyers have their way, many drugs that improve our quality of life will also be killed off. Just Google the litigation advertisements for Ozempic. They are “for the people.” The trial bar profits off corporate America with litigation abuse because our federal government and court system do not do their jobs. The hidden costs of rampant social inflation harms our society. It happens because Congress and the regulatory state are dysfunctional and cannot solve real issues.
What does Roundup have to do with ERISA fiduciary liability? It is only a matter of time before company-sponsored retirement and health plans become the next Roundup-type victims of the plaintiff bar. Why would America’s plan sponsors continue to offer retirement plans with generous company matches if the trial bar is going to turn these voluntary benefits into liability traps? Just wait for a recession, and smart employers that want to reduce liability risk will eventually eliminate employee benefit plans that are targeted by the plaintiff trial bar.
If you think this is an exaggeration, then you have not been watching the latest five trends of the plaintiff ERISA trial bar as they work to create novel fiduciary liability as America’s de facto fiduciary liability regulators:
- Pension Risk Transfers: The plaintiff bar has filed at least ten lawsuits claiming that it is a breach of fiduciary duty to choose the A+-rated Athene life insurer for pension risk transfers. At least three plan sponsors have been sued twice, as plaintiff firms jockey to cash in on this new junket. DOL sat around while Athene executed at least forty-eight pension risk transfers, and never objected to or questioned a pension risk transfer to a private-equity owned life insurer. But now Jerome Schlichter, the chief of the ERISA police, and his copycat plaintiff lawyers are allowed to challenge the prudence of these transactions? Plaintiff lawyers get to decide if private equity-owned insurers and Bermuda reinsurance are somehow risky for plan participants? Since when does Mr. Schlichter know more about the financial solvency of life insurers than A.M. Best and the federal regulators? Who is in charge here?
- Health Plan Excessive Fees: The plaintiff bar has filed two high-profile lawsuits trying to scapegoat Johnson & Johnson and Wells Fargo for failing to monitor PBMs. Somehow it is a breach of fiduciary to do something – limit health care and drug costs – that even the federal government as the largest provider of health care in America cannot do. The ERISA plaintiff and defense bar have both predicted an avalanche of similar cases if the federal courts in the J&J and Wells Fargo allow standing to the plaintiff lawyers in these manufactured fiduciary breach cases. But what is great for ERISA lawyers is a cost to the rest of us. If PBMs are a menace to society, why will we allow plan sponsors to be scapegoated in high-stakes litigation?
- Tobacco and Vaccine Surcharges: The plaintiff trial bar has filed at least thirteen breach of fiduciary duty cases alleging that it unfair to charge a higher health care premium if you smoke tobacco. DOL watched this common practice for years, and never objected. Why now is the plaintiff trial bar allowed to regulate this commonplace practice as a breach of fiduciary duty? Again, who is in charge of fiduciary regulation?
- Plan Forfeitures: The plaintiff bar has filed at least fifteen cases and counting alleging that the common practice of applying forfeited contributions against future employer plan contributions is somehow no longer a settlor function and is a breach of fiduciary duties. The plan sponsor paid the contributions on behalf of specific plan participants in a defined contribution plan with individual accounts, but other plan participants in separate accounts have a right to this money? It is against the best interests of plan participants for this money to be used by the employer, notwithstanding that they are following the plan document? Where is the IRS and DOL in these cases? Why are they allowing the plaintiff trial bar to prey on conscientious plan sponsors who are following explicit IRS guidance.
- Actuarial Equivalence: Plaintiff lawyers have filed over twenty-five cases alleging that married participants are short-changed when plan sponsors use outdated mortality tables when converting single-life annuities to joint and survivor annuities. We admit that these are sympathetic claims, but all of these plan sponsors are following plan documents, and there is nothing in ERISA that mandates reasonable actuarial assumptions for JSA conversions. But has not stopped courts from rewriting private contracts and ERISA to allow plaintiff lawyers to establish novel liability not permitted under ERISA or DOL regulations. If we needed any more push to eliminate defined benefit retirement plans, this is the last straw. No rational employer would ever start a new defined benefit plan when the trial bar uses these plans as a liability trap. If you cannot count on the Department of Labor to provide a uniform and predictable framework of fiduciary responsibility, smart employers will opt out of liability traps.
The Fid Guru Blog has chronicled the unfair attacks on fiduciary discretion and judgment in excess fee and performance litigation. But the five novel theories of liability identified above represent something different and more nefarious. All five of these class action theories are attacks on plan sponsors who have conscientiously followed the law. This is not about discretion. It is whether plaintiff lawyers can pull the rug and establish new, retroactive regulatory liability through litigation. Throw out the normal legislative and regulatory process to define plan sponsor responsibilities. This is regulation by litigation.
Who is in charge of ERISA regulation in America? The government or the trial lawyers? ERISA was designed to make sure that employers kept their promises. But it was also designed to create a nationwide, uniform standard of fiduciary responsibility. The current ERISA fiduciary standard is nothing close to that. ERISA fiduciary rules are now whatever a plaintiff law firm can convince federal judges to allow in manufactured lawsuits. A different fiduciary standard in every federal court across the country. Hardly what ERISA intended.
The Department of Labor is missing in action. DOL is too focused on marginally relevant ESG investments, and the investment advice fiduciary rule for IRA rollovers when they lack authority under ERISA Title II to regulate IRAs. By not focusing on the key issues where they actually have legislative authority, they are allowing plaintiff lawyers to regulate the key fiduciary duties for retirement and health plans in America. With the DOL abdicating its role to regulate the fiduciary standard of care for ERISA-covered plans, we are at the mercy of profit-seeking plaintiff lawyers. It is because our government doesn’t function properly. Congress cannot update statutes when the world evolves. And DOL regulators are too focused on political objectives to do their jobs properly.
Recognizing that the government is not going to help us restore fairness, plan sponsors need to work together to combat the litigation abuse. Otherwise, we are allowing the trial bar to forum shop to create fiduciary liability improperly though litigation. We identify three key objectives to combat the ERISA litigation abuse.
- First, we must demand that Congress and DOL do their jobs to validate that common-place practices, like plan forfeitures and pension risk transfers, are not retroactively breaches of fiduciary duty;
- Second, we must not allow plaintiff lawyers to file cases in multiple courts that challenge the exact same settlor or fiduciary practice; and
- Third, PBMs and pension-risk transfer life insurers must take the lead to defend the litigation against their clients when the real target is the business models of these entities.
ACTION ITEM #1: DOL and Congress Must Act to Restore the Government as the Regulator of ERISA, Not Plaintiff Lawyers
The Department of Labor is missing in action. They sat by and never objected when forty-eight companies executed pension risk transfers with Athene. Athene relied on the DOL, and so did each of the forty-eight plan sponsors and their independent fiduciaries who chose Athene in legitimate transactions. If these transactions involving a private equity insurer and Bermuda reinsurance were somehow risky to plan participants, then why did DOL sit back and do nothing. Forty-eight plan sponsors detrimentally relied on the regulatory non-action of DOL. DOL did nothing because no regulatory action was needed.
But when DOL had an explicit opportunity to validate the Athene transactions, they punted. Congress expressly asked DOL in the SECURE 2.0 Act of 2022 for an update to Congress on pension risk transfers. But rather than addressing whether the lawsuits challenging private equity pension risk transfers are legitimate notwithstanding its regulatory inaction, DOL instead highlighted the very issues raised by the plaintiff trial bar. The Schlichter law firm could have written the DOL’s report itself. Instead of snuffing out these lawsuits, the Department of Labor Report to Congress on Employee Benefits Security Administration’s Interpretive Bulletin 95-1 gave catnip to the plaintiff bar by acknowledging “developments in the life insurance industry that may impact insurers’ claims-paying ability and creditworthiness.” These “developments” happened on DOL’s watch. It is their responsibility to regulate these transactions.
The DOL report further notes potential issues regarding “insurers’ ownership structures; exposure to risky assets and non-traditional liabilities; and use of affiliated and offshore reinsurance.” The report acknowledges that “further consideration should be given to whether the Interpretive Bulletin’s guidance should be amended to enhance fiduciary decision-making on these issues” as those issues—separately or in combination—“may expose annuitants to excessive risk.”
Thanks DOL. Now the Schlichter law firm can fill in the regulatory gap that the DOL refused to close. DOL is expressly allowing these lawsuits as if they work for the trial bar. If there is a legitimate risk posed by Athene, then address it. Instead, DOL punted to keep the regulatory ambiguity alive.
What exactly does the Secretary of Labor and the Employee Benefit Security Administration Chief think their job is? To expose plan sponsors to litigation risk? Do they realize that they are the chief fiduciary regulators for plan participants and plan sponsors – that without plan sponsors, there would be no retirement benefits? If there is a real issue, then address it.
Beyond pension risk transfers, DOL never objected when nearly every plan sponsor in the country offset forfeited contributions against future contribution obligations. IRS put out regulatory guidance expressly validating the practice. But both IRS and DOL sit idly by while conscientious plan sponsors are being attacked with fiduciary-breach cases across the country. Maybe DOL is too busy finding missing participants.
DOL never objected when plan sponsors used PBM spread pricing. Nearly every company uses a PBM to manage prescription drug pricing. If spread PBM pricing is somehow a breach of fiduciary duty, where was the DOL when plan sponsors used this practice for decades?
The Department of Labor is supposed to be in charge. They need to intervene in these cases and tell federal judges that every plan sponsor sued in the PBM, plan forfeiture and other manufactured fiduciary-breach cases have conscientiously relied on regulatory guidance and regulator-blessed common practices. There is no breach of fiduciary duty in following standard practices used by nearly every plan sponsor and fiduciary plan committee in America. There may be some plan sponsors that are harming plan participants, and DOL’s job is to find and prosecute these real offenders. But none of the complaints in the cases highlighted above identity any real malfeasance. All of these cases are attempting to create novel liability. That should be the province of Congress and DOL – not plaintiff lawyers in Article III courts.
Beyond the DOL, Congress must act with ERISA litigation reform. In the 1990s, the trial bar was filing frivolous securities fraud cases against public companies, using investors with as little as one share of stock. Congress acted with the Private Securities Litigation Reform Act of 1995 (PSLRA), creating a higher pleading standard to combat securities fraud abuse. It has not been a perfect solution, but at least Congress tried to reduce frivolous litigation.
We need a PSLRA for ERISA – litigation reform to stop ERISA litigation abuse. We need a fairer pleading standard that weeds out frivolous cases. We need a higher threshold for standing to sue plan sponsors – not a participant with less than $1 in plan fees like some cases. And we need the business judgment rule to protect the good faith discretionary judgments of plan sponsors from abusive litigation. A business judgment rule would establish a presumption of good faith unless plaintiff lawyers have real evidence of malfeasance. It would eliminate the attack on valid discretionary judgments for the selection of investments and service providers. We need ERISA litigation reform.
ACTION ITEM #2: We Must Not Allow Plaintiff Lawyers to Divide and Conquer With Multiple Cases in Multiple Jurisdictions.
The plaintiff trial bar is savvy. They file the same copycat fiduciary-breach complaint against different companies before different federal judges. It is forum shopping for a federal judge willing to allow a novel theory of liability. They don’t have to win every case. They just have to file enough cases to make sure they get past a motion to dismiss in one or more cases. It takes years to get to appellate review. In the meantime, they have a profitable revenue stream against plan sponsors who settle to make the plaintiff lawyers go away. The defense lawyers refuse to respond on a more global basis to consolidate cases, and this plays directly into the divide-and-conquer strategy of the plaintiff bar.
Consider what is happening with the plan forfeiture breach of fiduciary duty cases. The cases have spread from California to other parts of the country as new plaintiff firms have jumped on the bandwagon. We have already seen divergent decisions as to whether these cases are legitimate claims of breach of fiduciary. The exact same practice is kosher for BAE and Thermo-Fisher, but not for Qualcomm and Intuit. There are some differences in plan language in the BAE plan compared to the other cases, but the legitimacy of applying plan forfeiture to offset future contribution obligations will be decided by federal courts on a case-by-case basis.
We have allowed the plaintiff bar to divide and conquer. They have forum shopped to find federal judges willing to create novel liability. We are allowing inconsistent rulings in different jurisdictions. Somehow ERISA fiduciary liability law is treated like cannabis and online gambling where the same practice will be legal in some jurisdictions, but not in others. It is further prejudicial because it is retroactive liability. Forfeiture lawsuits are improper attempts to change the law retroactively and impose liability for conduct that complies with well-established law. But that is exactly what is happening when you impose regulation through litigation that allows plaintiff lawyers to change the rules and impose retroactive liability against conscientious plan sponsors. If you want the law to change, it must be done prospectively. It is a basic tenant of ex post facto fairness in American democracy.
The current whack-a-mole judicial system is allowing the trial bar to set the regulatory agenda through shot-gun litigation, fishing to find a federal judge to impose retroactive liability. They found a willing judge in the cases against Qualcomm and Intuit. But changing the law by litigation is unfair to conscientious plan sponsors who are trying to follow existing fiduciary law. The proper way to change regulatory law is prospectively, not retroactively.
As noted above, DOL needs to intervene in these lawsuits to inform judges that the conduct of plan fiduciaries that follow plan documents is not a fiduciary function and not a prohibited transaction. But until that happens, plan sponsors need to ask federal judges in new cases to either stay the case until we get appellate review of the first-filed case, or consolidate new cases before one federal judge. Plan sponsors that insist on going it alone are playing right into the plaintiff trial bar’s strategy of creating liability through litigation chaos.
The defense lawyers have played into the hands of the plaintiff trial bar. ERISA defense firms have been huge winners from the ERISA litigation abuse. They often make more in litigation fees than the plaintiff lawyers gain in settlements. It might not be in the interests of defense firms to stay cases assigned to them. They lose the litigation revenue. But their jobs are to protect their plan sponsor clients. And if they believe that we will ultimately win these novel fiduciary theories in the appellate courts – and we will – then it is a legitimate strategy to stand down and pursue a strategy that defers to the first-filed cases. But no defense firm has been willing to ask courts to consolidate cases. We note that this is the strategy used in most product liability cases. We realize that product liability cases are not usually filed against different employers, but we are letting the plaintiff law firms to control the ERISA regulatory agenda. If the DOL is going to remain missing in action, we need to fight back.
ACTION ITEM #3: Express Scripts and Athene Must Intervene and Defend These Lawsuits, Which Challenge Their Business Models.
The DOL is missing in action. But what about the real targets of this litigation – Athene in the pension risk transfer cases, and Express Scripts in the PBM cases? Where are they when their clients get sued?
Athene should take over the defense of the PRT cases. It is their business model at risk and being challenged. Why is Athene allowing its entire business to be defended by its clients and their lawyers? Why wouldn’t Athene want to defend its company with its own lawyers and its own better knowledge and evidence? Athene should move to consolidate the PRT cases before one judge, and then seek appellate review to create decisive law on whether there is standing to challenge PRTs. And they should rally the Department of Labor to intervene to restore justice.
The same goes for the health plan excessive fee litigation targeting specialty drug pricing. The J&J and Wells Fargo cases were filed as part of the long-running crusade against PBMs. After years of trying, the plaintiff lawyers were not able to sue PBMs directly, so they are using ERISA to sue plan sponsors to get to the PBMs indirectly through the clients. A classic scapegoat litigation scheme.
The cases are about allegedly excessive compensation to PBMs. No plan sponsor wants to pay even one dollar more than necessary to any health plan providers. Plan sponsors have no incentive to overpay PBMs. These cases are attacks on PBMs through their client base.
Express Scripts and the PBM industry need to step up and defend these cases. If their practices are legitimate, then why allow their industry to be attacked and defended through their clients, who are innocent victims in the significant efforts to charge PBMs as bad actors? If PBMs are trying to save money or think this will not affect their future business model, it is a short-sighted strategy. PBMs cannot hide. And their client victims like J&J and Wells Fargo should insist that PBMs defend this litigation. If PBMs have done nothing wrong, then step up and prove it. Take on the plaintiff trial bar, but don’t make your clients take a bullet for your business model.
FINAL THOUGHTS
The lawyer class is obsessed with the end of Chevron deference under the Supreme Court’s Loper Bright ruling. But that is about regulatory overreach, like when DOL tries to regulate IRAs when they lack fiduciary oversight jurisdiction. The five novel theories of liability against conscientious plan sponsors are about regulatory inaction. DOL has authority in all five instances, but instead has chosen to allow the trial bar to set the regulatory agenda. I don’t remember voting for Jerome Schlichter and his copycat minions of the plaintiff trial bar. It is time for DOL to start doing its job.
