In an atmosphere of increasing litigation, ERISA risks are not exempt as targets, and those who might find themselves in the legal crosshairs of a suit need to do what they can to shift the odds in their favor—and insure themselves against potential loss.

A special report from Groom Law Group and Chubb, “Who May Sue You and Why: How to Reduce Your ERISA Risks, and the Role of Fiduciary Liability Insurance,” offers insights into which plans are most likely to be at risk, as well as suggestions on plan design and administration that may help reduce potential exposure.

In addition, it explores how fiduciary liability insurance can mitigate risk and protect fiduciaries’ personal assets.

According to the report, ERISA plan sponsors, fiduciaries and service providers are all potential targets of litigation, which can cost fiduciaries millions of dollars to defend and expose them to millions more in potential liability.

Successes in the courts and high-dollar settlements for plaintiffs have led to increased efforts by others to challenge what they believe are breaches of fiduciary duty.

“Although ERISA class-action lawsuits have been around for years, we’ve recently seen an expansion in the number of plaintiffs’ law firms bringing these cases,” ERISA litigator Lars C. Golumbic of Groom Law Group, author of the report, says in a statement.

Golumbic adds, “More and more firms are jumping on the bandwagon as they see other firms’ investments in ERISA litigation paying off. What's more, even the established firms have significantly expanded their fiduciary targets—and now no plan sponsor or fiduciary is immune from suit.”

The report points out that plans most likely to be targeted include the following:

401(k) plans that offer employer securities as an investment option
401(k) and 403(b) plans that offer mutual funds, annuities, stable value funds and/or target-date funds that aren’t among the best performing/least expensive ones available on the market or that utilize revenue sharing
employee stock ownership plans (ESOPs), in particular leveraged ESOPs
plans that claim the church plan exemption to ERISA

Says the report, “ERISA does not impose liability at large. Rather, from the board of directors to the benefits manager, an individual’s potential exposure, including possible individual liability, depends in significant part on his or her role with respect to the employee benefit plan in question.”

But even though the law distinguishes between "settlor activities, which are not considered fiduciary in nature, and fiduciary activities,” the report says, “this distinction does not always provide protection from class action litigation where, as a general rule, anyone remotely connected to an ERISA plan will be named in the lawsuit.”

Lawsuits, it adds, paint with a broad brush, with targets “typically include[ing] … the plan sponsor; the plan administrator; any named fiduciaries, particularly members of any investment committees; appointing fiduciaries, particularly the CEO and members of the board of directors; the recordkeeper and/or trustee of the plan; investment managers; and other service providers (e.g., accountants, consultants, investment advisors, and attorneys).”

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Report offers guidance on potential ERISA lawsuits, protections for fiduciaries

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