Pension plans are anticipated to face extra litigation in 2021
Plan sponsors should closely monitor litigation related to retirement benefit plans as the effects of COVID-19 can spark new legal disputes.
Market volatility in March and April, as well as cybersecurity risks Industry experts believe that some employers may face litigation in the New Year.
Smaller businesses, which typically lack the resources to invest in a wide variety of cybersecurity measures and are therefore vulnerable to cyber breaches, could be at risk, says Jordan Mamorsky, an ERISA [Employee Retirement Income Security Act] Litigation attorney at the Wagner Law Group. “Smaller plans have a harder time investing in more robust cybersecurity measures because of their resources,” he says.
Mamorsky predicts that possible DOL guidelines on cybersecurity measures could alleviate the concerns. In September, the Wagner Law Group filed a letter to DOL asking for “Comprehensive Cybersecurity Guidelines” on issues related to confidential information, a plan administrator’s responsibility, and more.
Until the DOL issues such guidance, employers large and small should be aware of their cybersecurity risks. “Because it is so unknown from a regulatory point of view and because we have seen such growth in crime in this cyber arena for small and large employers, it will be a big problem,” says Mamorsky.
Gregory Kasten, founder and CEO of Unified Trust Co., anticipates a more active DOL in 2021, led by President-elect Joe Biden. However, this could open the door to new litigation, especially when it comes to plan assets. “I would expect there to be a much more active DOL and fiduciary activity and a stronger fiduciary rule under this new administration,” he says. “This trust rule could give rise to the possibility of further legal disputes.”
Several cases have been filed in recent years, including against Vanderbilt University, Shell Oil Co., and several Fidelity divisions, accused defendants of improperly using plan data for commercial purposes. Kasten explains that a new escrow rule could reveal who owns the plan data, whether it is the plan administrator, the provider, or the participant. “It will generally go in the direction [a decision that] The provider does not own the data and cannot only use it for marketing purposes, ”suggests Kasten.
Investment disputes specifically targeting fees and losses are also expected to increase over the course of 2021. John Niedernhofer, a national leader in complex claims at Marsh & McLennan Agency, expects retirement disputes to rise in the face of high market volatility over the past year. “Whenever there is significant sustained market volatility or a sustained bear market greater than 10%, the damage rate increases significantly for more than 12 months,” he explains.
Investors who bought high and sold low only to see their investments recover later will question the advice they received, notes Niedernhofer. In addition, the mix of volatility, duration and economic pessimism will lead to claims. “Add more volatility and a longer volatility duration and increase the tendency to claim,” says Niedernhofer. “In addition, the desperation – like the dramatic rise in unemployment and the widespread negative outlook caused by a pandemic – is increasing and process activity is increasing in all areas and certainly in investment advice.”
Kasten assumes that most of the investment disputes that will take place in the coming years are mainly due to the investment results after long, multi-year or multi-year downward markets. He says litigation has increased in the years following the dotcom collapse in 2000 and the great recession in 2008 because participants were at serious risk without diversification. “If you get into a sustained decline where quarter after quarter results are lost and many attendees lose a lot more money than you thought, you will see litigation out of it,” he warns.