ERISA Class Actions Are Complex, Costly and Increasingly Common


The Employment Retirement Income Security Act of 1974 (ERISA) was enacted to protect the assets of most private retirement and health plans and their plan beneficiaries. When plan sponsors or administrators violate ERISA’s mandates and harm plans and beneficiaries, a class action lawsuit may be brought on behalf of all similarly affected plan participants. ERISA is a far-reaching statute, and due to its unique complexities and the difficulties involved in enforcing it, only a select group of lawyers practice in this area of the law. Further, cases can be very costly and can take years to litigate. Despite these challenges, ERISA class action litigation has increased steadily in recent years.  


What ERISA Mandates

ERISA sets minimum standards for most private retirement and health plans in terms of transparency and reporting. The statute requires that certain information be conveyed to plan beneficiaries, including details about the plans’ features and funding, so that they can understand their benefits, costs and rights under the plan. Those persons or entities who exercise discretionary control or authority over plan management, plan assets or plan administration or who provide investment advice to a plan for compensation owe beneficiaries a fiduciary duty under ERISA, which means these entities and individuals must put the interest of the plan and plan beneficiaries before their own. This is both an ethical and a legal duty. 


ERISA Class Action Litigation

ERISA class action lawsuits commonly involve allegations of breach of fiduciary duty in connection with some sort of financial impropriety. This may include poor investment decisions, excessive fees, failure to obtain competitive bids, engaging in prohibited actions with plan assets, or continuing to offer a company stock as an investment option when the price of the company’s shares is artificially inflated due to false or misleading company statements and/or material omissions. ERISA breach of fiduciary claims are often certified as class actions, because when plan managers breach their fiduciary duty to one participant, they do so to all participants.   

ERISA class actions allow for recovery of profits earned inappropriately through misuse of plan assets, and plaintiffs can demand removal of the bad actors who violated the law or plan terms. 


Legal Challenges

To be successful, putative classes must show the fiduciary breached its duty of care and loyalty to the plan and its beneficiaries. In order to accomplish this, the affected parties must demonstrate that a plausible alternative action was available that was both consistent with the law and would have been taken by a prudent fiduciary under the circumstances. This is not an easy standard to prove. It requires skilled legal counsel and expert testimony. 

ERISA class actions are very costly to litigate and often last for many years. In the past, ERISA class actions mainly concerned very large, multi-billion-dollar plans. However, in recent years, companies with plans valued at under $100 million in assets have been sued. Many cases end in settlements, which have ranged from several million dollars to $1.5 billion, depending on the severity of the violations proved. Unfortunately, remedies available under ERISA are limited. Plaintiffs cannot recover punitive damages or damages for pain and suffering. On the bright side, there is a fee-shifting statute that permits recovery of attorney fees as approved by the court. All settlements in ERISA class action cases must also be approved by the court, which verifies that the settlement is fair, reasonable and adequate.


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Evan S. Schwartz
Founder of Schwartz, Conroy & Hack