The legal framework for certain types of claims brought under the Employee Retirement Income Security Act would be revised under proposed legislation in in the U.S. House.
The ERISA Litigation Reform Act, introduced by Rep. Randy Fine, R-Fla., is intended to
curb meritless class-action lawsuits by clarifying the pleading standard applicable to ERISA-prohibited transactions claims. The reform effort comes in response to recent litigation trends and a U.S. Supreme Court decision last year that effectively lowered the pleading standard for prohibited transaction claims under ERISA.
The bill has been referred to the House Committee on Education and the Workforce and the House Judiciary Committee.
Section 406 of ERISA outlines prohibited transactions, and Section 408 lists exemptions to those prohibitions, according to the law firm DLA Piper. Under the proposed bill, the “plaintiff has the burden of plausibly alleging and proving” not only a violation under Section 406 but also that no exemption under Section 408 applies. This means that for claims alleging that a fiduciary caused a plan to engage in a prohibited transaction, plaintiffs must allege (and ultimately prove) that the transaction is not exempt under Section 408(b)(2) or Section 408(e) of ERISA.
This would nullify the ruling in which the Supreme Court ruled that a plaintiff is required to allege only the elements specified in Section 406(a) of ERISA -- “no more, no less.”
The legislation also proposes an automatic stay of all discovery and other proceedings when a defendant files a motion to dismiss. The stay would remain in effect until the court resolves the motion unless the court finds that specific, limited discovery is necessary to preserve evidence or prevent undue prejudice. During the stay, parties are encouraged to preserve documents related to the claims, and courts can impose appropriate sanctions as necessary for any preservation failures. The purpose of the stay is to prevent costly, premature discovery before a court has ruled on the legal sufficiency of the claims set forth in the complaint.
“The ERISA Litigation Reform Act is intended to reduce meritless lawsuits and streamline the pleading standard for prohibited transaction claims,” according to DLA Piper. “Plan sponsors are encouraged to watch this legislative development, as it could provide a path for courts to identify and dismiss certain claims more quickly and efficiently.”
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