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Claims Against Benefit Plan Sponsors Grow More Sophisticated

Lawsuits against sponsors of retirement plans have been fairly common over the past decade. Typically, these claims involved relatively obvious violations, like excessive costs, negligent oversight and other types of blatant mismanagement. However, ERISA actions stemming from alleged fiduciary breaches and other misconduct have become increasingly complex.

A claim filed against Community Health Systems highlights the sophistication of some of these cases. Employees say the hospital group retirement plan failed to adjust for a “tracking error” made by its index fund, which was geared to the S&P 500. They claim that over a period of nearly a decade, the fund underperformed its benchmark by approximately 9 percent — compared with other S&P 500 index funds that trailed by only 1 or 2 percent — which cost participants a loss of retirement savings.

Whether the Community Health Systems case leads to relief remains to be seen, but plan administrators and beneficiaries should understand the new breed of legal actions that have and might be brought, including disputes relating to:

  • Lack of due care in selecting investments — More information exists than ever before regarding mutual funds and other investments. Now, if someone goes on the internet and finds a competing investment with lower fees, negligence may be alleged.
  • Misuse of plan beneficiary data — Protection of personal data remains a key issue. A lawsuit that was eventually dismissed accused Northwestern University of improperly using information about plan members to help sell other investment vehicles.
  • Failure to negotiate more favorable terms — Plaintiffs’ lawyers might try to sue health plan sponsors that do not negotiate with providers to establish lower fees.

Some speculate that fear of legal second-guessing might discourage the creation of employee benefit plans. Employers, pension funds and other plan administrators nevertheless should exercise more vigilance than ever when carrying out duties on behalf of their beneficiaries. At the first sign of a problem, skillful legal counsel might be required to avert a costly lawsuit.

Schwartz & Kanyock, LLC handles trials and appeals in a wide range of complex litigation actions. To schedule an appointment at our office in Chicago, please call 312-436-1442 or contact us online.

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