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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 company’s 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 America’s 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 ERISA’s shortcomings.