Retirement plan advisers are
increasingly being drawn into 401(k) lawsuits, as litigation creeps down market
and plaintiffs' lawyers test out new legal theories to ensnare advisers,
according to a panel of litigation experts speaking Monday afternoon.
"I think the chances of
[getting sued] are more common now than they were five years ago," said
Thomas Clark Jr., partner at The Wagner Law Group. "The theories are more
aggressively being brought against advisers."
retirement-plan sponsors began appearing en masse in 2006, when law firm
Schlichter Bogard & Denton sued several large corporations with
multibillion-dollar 401(k) plans. Most litigation up to this point has targeted
only the largest plans as well as service providers such as record keepers,
often for breach of fiduciary duty due to excessive 401(k) fees.
But litigation is heading
down market to smaller plans – the market in which most 401(k) advisers
"We've started to see
cases going all the way down to $100 million, $90million [plans]," said
Mr. Clark, who spoke at the annual National Association of Plan Advisors
conference in Nashville. Lawsuits have even been brought against employers with
plans as small as $9 million, he said.
Michael Wolf, a litigator at
Schlichter Bogard & Denton, said it's "not too far away" from
plan sponsors suing their advisers to bring them into a lawsuit as a
"What we're seeing in
our litigation is plan sponsors trying to fob off responsibility for things
that went wrong on the plan adviser," Mr. Wolf said.
Mr. Clark, who tracks
several ongoing lawsuits, said he's compiled a list of five theories attorneys
have recently used to bring legal claims against advisers. One theory, for
example, tests whether a fiduciary 401(k) adviser can be held liable as a
"party in interest," or basically anyone who provides services to a
plan, Mr. Clark explained.
"There are more and
more theories against advisers as fiduciaries," said Mr. Clark, a former
attorney at Schlichter Bogard & Denton.
"It seems to be any
which way to Sunday you might get the golden ticket," he added.
The outlook is somewhat
positive for advisers, though. Both Mr. Clark and Mr. Wolf said it's likely
lawsuits targeting small retirement plans won't persist. The time and expense
of litigating against a small plan — from which any sort of damage recovery
(and profit for plaintiffs' attorneys) would be relatively small — is a high
hurdle for litigators.
"It's a game of chicken
on some of these lower-asset plans," Mr. Clark said. "The plaintiffs'
lawyers will jump off the road first."
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