Seven years ago, Rory Albert saw a wave of litigation
heading toward his clients, large corporate
defined-contribution-plan sponsors. Albert, then co-chairman of
the employment and labor law department at Proskauer Rose law
firm in New York, knew he would need to lawyer up. So he called
his friend Howard Shapiro, an ERISA litigation attorney based
in the New Orleans office of Shook, Hardy & Bacon, and made
him an offer. Shapiro had spent his career defending U.S.
corporations accused of breaching their fiduciary duties under
ERISA, the landmark statute otherwise known as the Employee
Retirement Income Security Act of 1974.
In 1998 a federal judge certified the first ERISA
class-action lawsuit when defined-contribution-plan
participants alleged that their investment in their
companys stock IKON Office Solutions was
not prudent. After the Enron Corp. and WorldCom accounting
frauds sent shares plummeting, stock drop cases
began to multiply. Soon these class-action suits raised
legitimate complaints about high fees and opaque terms. By
2005, after Albert had talked Shapiro into working for
Proskauer, more than 11,000 ERISA cases were making their way
through federal courts. Tens of millions of dollars in fees
later, the move seems prescient. This is not the
sky is falling, says Shapiro, referring to
the deluge of litigation. This is real.
In less than a decade, 800 of the largest U.S. corporations
AOL Time Warner, AT&T, Caterpillar, Delta Air Lines
and General Electric Co. among them have been sued by
classes of employees who believed their self-directed
retirement plans failed to meet standards set by the 1974 law.
Today, Citigroup, Merck & Co., Morgan Stanley, Nortel
Networks Corp., Pfizer and Wal-Mart Stores are embroiled in
retirement-related lawsuits. The price tag has been steep.
Corporations have already paid more than $4 billion in
settlements, according to Fiduciary Counselors, a
Washington-based legal advisory firm.
In the absence of a national retirement policy, litigators
in the courts not lawmakers have played an
outsize role in shaping Americas retirement future. Why?
Participant-directed defined contribution plans, most often
401(k)s, did not exist as mainstream retirement schemes when
ERISA was created. That mismatch has resulted in billions of
dollars in legal fees and settlements as participants sue to
make their savings plans look more like old-fashioned pensions
as defined by the statute. The beneficiaries: attorneys on both
sides of these lawsuits and the mutual fund industry, which now
holds $2 trillion in defined contribution assets, half of the
total in these plans. The losers: retirees who pay higher fees
and employers embroiled in lawsuits to support the industry
built around ERISAs shortcomings.