Excessive fee cases: the new wave of ERISA litigation.

• Author: Ferrera, Tess
• Position: LEGAL - Employee Retirement Income Security Act

In recent years, plaintiffs' class-action law firms have jumped on the Employee Retirement Income Security Act (ERISA) litigation bandwagon, hoping for large rewards and fees for breach of fiduciary duty against sponsors of employee pension plans, plan vendors and boards of directors of company sponsors.

These cases became known as "stock drop" cases, for the drop in value of company stock due to market conditions or, in certain cases, allegedly due to company manipulation in the disclosure of financial information. The first wave of cases alleged that fiduciaries violated ERISA when they allowed participants--in some cases induced participants--to continue investing in the 401 (k) company stock option or an Employee Stock Ownership Plan (ESOP) when the company stock price dramatically declined.

Plaintiffs asserted the plan fiduciaries should have taken action to close down the purchase of stock in the 401 (k) plan or ESOP and their failure to do so caused losses to participant accounts. While stock drop litigation continues, the new round of ERISA litigation alleges that fiduciaries violated ERISA for paying excessive fees to financial vendors to 401 (k) plans.

There have been about 40 excessive fee class-action cases filed in recent years against large employers and well-known financial institutions. There are at least three categories of fee cases. Some have been brought by a participant against the company sponsoring the plan, some against the plan fiduciary financial vendors to such plans or by a plan fiduciary, usually a small company, against the financial vendor on behalf of all similarly situated plans.

This last category raises questions of standing on the part...