Toward the end of 2024, an entirely new category of ERISA litigation began to take shape. These are known as pension risk transfer (PRT) lawsuits. They have all the makings of a looming legal storm. A big one. Among the players are:
- Roughly half of all American adults who, by the end of 2024, held as much as $42 trillion in retirement accounts. They urgently need to know if their savings are safe;
- Fiduciaries of retirement plans covered by the Employee Retirement Income Security Act (ERISA), who need to know the limits of their legal duty to participants when they transfer plan assets to insurance companies and other non-ERISA annuity providers;
- Service providers, including those who manage asset transfers, who need clarity about whether the transfer makes them subject to strict legal requirements of ERISA compliance; and
- The Fifth Circuit and its 2018 decision in Chamber of Commerce v. Department of Labor to vacate federal regulations about fiduciary duty. This has now been cast into high relief by the Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo.
Predicting the course of future litigation is a fool’s errand; history helps sometimes though. In any event, this looks like a combustible mix.
Kilgore & Kilgore Employment Lawyers Understand the Developing
ERISA sets out rules for pension plans, health and disability benefits. But it is a layered and complicated law that changes fast, but also draws from centuries-old principles. To find the answers to your questions about ERISA litigation, you need a lawyer with a wide range of knowledge and experience. Please visit our ERISA and Disability page. For a free review of the facts of your case, reach out by clicking here and sending a contact request to our website Kilgore & Kilgore.
ERISA Guidance – the First Ten Years – To Promote the Interests of Employees and Their Beneficiaries
To quote the Fifth Circuit’s Chamber of Commerce decision, “Congress passed ERISA in 1974 as ‘a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans.'” The intended beneficiaries were workers and their families, and only them.
ERISA does this in a variety of ways – including by importing certain ancient trust law principles into the law to ensure that retirement savings were strictly preserved for the use of the intended beneficiaries. Under Section 404 of ERISA, plan fiduciaries are required to act prudently and to diversify the plan’s investments to minimize the risk of large losses. In addition, they must avoid conflicts of interest, including transactions on behalf of the plan that benefit parties related to it, such as other fiduciaries, service providers, or the plan sponsor.
ERISA fiduciary duty requirements – An ERISA fiduciary’s duty of loyalty to the plan participants is often described as the highest standard of care.
Originally, most pension plans promised lifetime annuities to named beneficiaries beginning at normal retirement age. Workers often had long careers and did not become fully entitled (or vested) in their benefits for as long as ten years. The trust fund that held the money was managed by professional investment managers. The world of work was less volatile, and fiduciary regulation was straightforward.
Building Complexity, Crumbling Certainty – 1985-2000
Beginning in about 1985, however, retirement benefit plans began to diversify. Increasingly, participants began to manage their own retirement saving with the help of outside investment management – think of self-directed 401(k) plans, which are now the rule rather than the exception. Other options emerged as well. Some employers terminated their defined benefit plans and eventually annuitized benefits by moving plan assets to insurance companies.
Much of this diversification involved shifting risk away from the plan sponsor and moving retirement savings outside the plan. Questions began to emerge about the standard of loyalty and care that applied to the management of funds that had slipped beyond the immediate control of the named fiduciaries.
In 1995, the Department of Labor issued an Interpretive Bulletin to address this issue, known as IB 95-1. IB 95-1 generally recognizes that when a pension plan purchases an annuity from an insurer as a distribution of benefits, the plan’s liability for the benefits moves to the annuity provider. No longer covered by ERISA, the participant is protected primarily by state insurance law. The plan fiduciaries have discharged their fiduciary duty of loyalty if they have acted prudently. Prudence is defined as a matter of picking the safest possible annuity.
Recent Pension Risk Transfer (PRT) lawsuits rely heavily on IB 95-1, with plaintiffs alleging that plan fiduciaries, for reasons that would constitute a conflict of interest (including cost), failed to choose the safest possible annuity. Many of these lawsuits focus on contracts issued by Athene Annuity and Life Co.
The Fifth Circuit Vacates the Fiduciary Rule
The Fifth Circuit has long regarded IB 95-1 with skepticism, largely because the DOL’s guidance is only an agency interpretation that is not part of ERISA. In 2016, the DOL promulgated related guidance, a package of seven different rules, known as the “Fiduciary Rule” that reinterpret the term “investment advice fiduciary.” The stated purpose of the new guidance was to regulate hundreds of thousands of financial service providers and insurance companies in the trillion-dollar markets for ERISA plans and individual retirement accounts. In Chamber of Commerce, three business groups challenged the Fiduciary Rule as regulatory overreach not justified by the language of ERISA. In 2018, the Fifth Circuit vacated the Fiduciary Rule.
DOL Tries Again to Provide Greater Protection for Retirees – DOL Fiduciary Rule Changes
In early 2024, the DOL released its new fiduciary investment advice definition. The Retirement Security Rule: Definition of an Investment Advice Fiduciary, also known as the “2024 Fiduciary Rule,” would make more service providers investment advice fiduciaries, and thus subject to the conflict-of-interest rules under ERISA. This would provide greater protection for retirement accounts. The 2024 Fiduciary Rule is the subject of two lawsuits in Texas district court, and its effective date was recently stayed by both courts.
In one of the cases, Fed. of Am. for Consumer Choice, Inc. v. Dep’t of Labor, the Eastern District of Texas cites to Loper Bright in support of its conclusion that it owes “no deference to the DOL’s interpretation of ERISA.” The sides are clearly squaring off for a fight. What happens now is anyone’s guess. But it is safe to assume that something will.
Kilgore & Kilgore ERISA Lawyers May Guide You through the ERISA Compliance Lawsuit Maze
Please visit us at our ERISA Disability Claims page to learn more about how Kilgore Lawyers are working to guide clients through the ERISA maze. Please click this link to our website, fill out and submit a request for a free consultation Kilgore & Kilgore.