June 17, 2020
  • Disruptions in process could lead to litigation
  • Documentation is critical to protection, attorneys say
  • The coronavirus could spark a new type of claim against 401(k) retirement plans.

Companies dealing with pandemic-related disruptions like remote work and staff furloughs are at risk of getting sued if those disruptions impact investment decisions regarding the company’s retirement plan, and as a result, how well the plan performs, benefits attorneys say.

Retirement plans have been an active area of litigation in recent years with a flood of cases, many of which were successful, challenging high plan fees. Attorneys, now bracing for the next wave to hit, say an already active plaintiff’s bar could come out of the crisis with new breach of fiduciary duty claims to pursue under the Employee Retirement Income Security Act.

The fiduciary duties imposed under ERISA are fairly straight forward. The law requires those managing plans to act prudently and in the best interest of participants. However, it’s not prescriptive in how they do it. 

. . .

Attorneys for plan participants and beneficiaries say disruptions resulting from the pandemic are no excuse for a fiduciary’s failure to act prudently and evaluate the plan’s investment options.

“In times like this, it’s probably more imperative that fiduciaries be on top of the investment choices and options for participants,” said Karen Handorf, a partner at Cohen Milstein Sellers & Toll PLLC and chair of the firm’s Employee Benefits/ERISA practice group.

Changes in how the meetings are run, investments are evaluated, and information is distributed due to Covid-19 could all be fodder for potential litigation, but the claims would hinge on how decisions are made and implemented.

A lawsuit filed June 8 in the U.S. District Court for the District of Rhode Island against construction company Behan Bros. Inc., its retirement plan, and sponsors, appears to be the first filed against a 401(k) plan for a decision made in response to the pandemic, according to benefits attorneys tracking disputes.

Three former Behan Bros. employees participating in the plan allege the fiduciaries failed to produce timely year-end valuations and preemptively declared a special valuation as a result of the “the unprecedented and extraordinary change in the market valuation due to the Coronavirus pandemic” to reduce their 401(k) account distributions.

“That’s a case where it was perhaps a violation not to give you the information you needed when you should have gotten it,” Handorf said.

. . .

Fiduciaries can be held liable for breaching their duties under ERISA for not properly managing a retirement plan. But they can’t be held liable for plan losses alone, and claiming a fiduciary breached their duty to act prudently may be difficult to prove. Participants rarely have access to process information, Handorf said.

“ERISA doesn’t judge fiduciary activity by results. That’s beyond their control, but if after a series of months participants want an option that feels safer and the plan is not responding by giving them that option, I think they could have a fiduciary breach case,” she said.

Attorneys recommend fiduciaries protect themselves by documenting the steps they took to carry out their duties under ERISA.

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