ERISA Class Actions Settlements Cost Employers Nearly $1 Billion in 2017

Class action settlements and court decisions related to 401(k) retirement plans in 2017 significantly affected the direction of ERISA litigation, according to the newest edition of an annual law firm report on workplace class action lawsuits.

The aggregate value of settlements dealing with ERISA litigation, employment discrimination, wages and hours, and government enforcement soared in the latest year, underscoring a trend that has the potential to rock an employer’s balance sheet, if not bankrupt a company.

In many of the ERISA class actions, courts deliberated class certification issues in cases involving challenges to allegedly excessive investment management fees, continued employer stock investments in 401(k) plans, and employee stock ownership plans (ESOPs)—according to the 14th annual “Workplace Class Action Litigation Report” released by Seyfarth Shaw.

The yearly report studied 1,408 of the largest employment court cases from 2017 to help guide its clients through class action and collective action law, and to enable corporate counsel to make informed litigation decisions while minimizing risk, the firm said.

The cases decided in 2017 foreshadow the direction of class action litigation this year, according to Seyfarth’s report.

“One certain conclusion is that employment law class action and collective action litigation is becoming ever more sophisticated and will continue to be a source of significant financial exposure to employers well into the future. Employers also can expect that class action and collective action lawsuits increasingly will combine claims under multiple statutes,” the report said.

Retirement Case Issues

A dominant force in 2017 ERISA class action litigation was the filing by the plaintiffs’ class action bar of a wave of new 401(k) and 403(b) fee and investment lawsuits against various employers, with a heavy focus on institutions of higher education.

In retirement plan litigation, courts also continued to split on whether plaintiffs who have received lump-sum distributions have standing to sue under the Employee Retirement Income Security Act (ERISA), whether cash balance plans are inherently age-discriminatory, and whether employers may modify retiree health benefits.

Among workplace class actions, ERISA cases settled in 2017 were the most costly for employers in total. At $927.8 million they strongly outpaced the second-largest category—wage-and-hour settlements— valued at $525 million.

Combining all types of workplace class actions, settlement numbers in 2017 totaled $2.72 billion, a significant increase from 2016 when such settlements totaled $1.75 billion, the report said.

Variety of Rulings

Federal circuit and state courts in 2017 issued a wide variety of rulings on procedural and substantive matters in ERISA class actions, the Seyfarth report said. Among other topics, the rulings affected:

• Administrative fees, attorneys’ fees and costs, damages, and breach-of-fiduciary duty issues in these class actions;
• U.S. Department of Labor (DOL) and Pension Benefit Guaranty Corporation (PBGC) enforcement litigation;
• 401(k) class actions;
• Class action litigation over retiree/employee benefits; and
• Stock-drop class actions.

“More often than not, class actions pose unique ‘bet-the-company’ risks for employers. An adverse judgment in a class action has the potential to bankrupt a business and adverse publicity can eviscerate its market share,” said Seyfarth Shaw Chairman Peter C. Miller in the letter opening the report. “Likewise, the ongoing defense of a class action can drain corporate resources long before the case even reaches a decision point.”

4 Key Trends

Seyfarth’s overview of workplace class action litigation developments in 2017 showed four key trends.

1. The monetary value of the top workplace class action settlements rose dramatically in 2017. These numbers increased over past years, even after they had reached all-time highs in 2014 to 2016. The plaintiffs’ employment class action bar and governmental enforcement litigators were successful in monetizing their case filings into large class-wide settlements, and they did so at decidedly higher values than in previous years.
2. While federal and state courts issued many favorable class certification rulings for the plaintiffs’ bar in 2017, evolving case law precedents and new defense approaches resulted in better outcomes for employers in opposing class certification requests.
3. Filings and settlements of government enforcement litigation in 2017 did not reflect a sharp pivot from the ideological proworker (or antibig business) outlook of the Obama administration to a probusiness, less regulation/litigation viewpoint of the Trump White House.
4. Class action litigation increasingly has been shaped and influenced by recent rulings of the U.S. Supreme Court that have affected the prosecution and defense of class actions and government enforcement litigation. The past year continued that trend, with several key decisions on complex employment litigation and class action issues that were arguably more probusiness than decisions in past years.

“The stakes in these types of employment lawsuits can be extremely significant, as the financial risks of such cases are enormous,” said Miller in the report. “More often than not, class actions adversely affect the market share of a corporation and impact its reputation in the marketplace. It is a legal exposure which keeps corporate counsel and business executives awake at night.”

Jane Meacham is the editor of BLR’s retirement plan compliance publications. She has nearly 30 years’ experience as a writer/editor of financial services news.