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:
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.