Philadelphia, PAAn annual report indicates that workplace litigation, which includes ERISA plan lawsuits, rose in 2010 over 2009. Employees who put their hard-earned money in an employee stock plan or an employee savings plan can file an ERISA benefits lawsuit if they feel that plan is mismanaged.
The report, Seyfarth Shaw's Workplace Class Action Litigation Report 2011 Edition, found that the number of ERISA class actions rose from 8,944 in 2009 to 9,038 in 2010. Authors of the report note that the growth in ERISA litigation is expected to continue through 2011.
"The relatively negative economic conditions over the past 24 months, as well as the sub-prime mortgage meltdown, surely will continue to affect the course of ERISA class action litigation in 2011," the authors note. Because of the downturn in the economy and employer attempts to save money, employers will likely try to decrease employee benefits, which could lead to increased ERISA litigation.
The authors further point out that the Department of Labor has increased regulatory and enforcement efforts and is pushing for a broader definition of what constitutes a fiduciary.
Changes to the fiduciary rule would result in more people being considered a fiduciary and therefore held to a fiduciary duty in running employee benefits plans. Currently, a person is considered a fiduciary if he or she gives advice about a plan's investments on a regular basis. Therefore, people who give advice on an infrequent basis are not considered fiduciaries. Some broker-dealers who provide plan advice say they are not fiduciaries because their advice is not the basis for decisions made about a plan, thereby avoiding any liability if a plan is mismanaged.
Under the proposed changes to the fiduciary definition, if a person gives advice and receives a fee for that advice, even if the advice is given infrequently or on a one-time basis, that person would be considered a fiduciary. The reason for broadening the definition of fiduciary to include people who give infrequent advice is that even infrequent advice can result in a conflict of interest, which can cause harm to plan participants. People who are considered fiduciaries have a duty to act in the best interests of plan participants and can face a lawsuit for failure to do so.
There are some exemptions to the proposed fiduciary rule. If the broker-dealer makes it clear to another fiduciary that he [the broker-dealer] is acting on behalf of a third-party to sell something to the plan, that person would not fall under the definition of fiduciary.
Broadening the definition of fiduciary could lead to more ERISA class actions in 2011.
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