Plan sponsors should keep a close watch on retirement plan
litigation, as the effects of COVID-19 might spark new lawsuits.
The market volatility experienced in March and April,
coupled with the cybersecurity risks of remote work, could position some
employers to face litigation in the new year, industry experts say.
Smaller businesses, which normally lack the resources to
invest in multifaceted cybersecurity measures and are therefore susceptible to
cyber breaches, may be at risk, says Jordan Mamorsky, an ERISA [Employee
Retirement Income Security Act] litigation attorney at the Wagner Law Group.
“Smaller plans have a harder time investing in more robust cybersecurity
measures, just because of their resources,” he says.
Mamorsky predicts potential guidance from the Department of
Labor (DOL) on cybersecurity measures could ease concerns. In September, the
Wagner Law Group submitted a letter to the DOL requesting “comprehensive
cybersecurity guidance” on questions about confidential information, a plan
administrator’s responsibility and more.
However, until the DOL issues such guidance, small and large
employers alike should be aware of their cybersecurity risks. “Because it is so
unchartered from a regulatory perspective, and because we’ve seen such growth
from criminality in this cyber arena for small and large employers, it will be
a major problem,” Mamorsky says.
Gregory Kasten, founder and CEO of Unified Trust Co., says
he anticipates a more active DOL in 2021 under President-elect Joe Biden’s
administration. However, this might open the door for new litigation,
especially when it comes to plan assets. “I would expect that under this new
administration, there will be a much more active DOL and more activity on
fiduciary issues and a stronger fiduciary rule,” he says. “Out of that
fiduciary rule may come the opportunity for more litigation.”
Several cases filed in the past couple years, including
against Vanderbilt University, Shell Oil Co. and several business units of
Fidelity, accused defendants of inappropriately using plan data for commercial
purposes. Kasten explains that a new fiduciary rule could reveal who owns plan
data, whether that is the plan administrator, vendor or participant. “It’ll
generally be heading toward [a decision that] the vendor does not own the data
and can’t just use it for marketing purposes,” Kasten suggests.
Investment litigation, specifically targeting fees and
losses, is also predicted to rise throughout 2021. John Niedernhofer, a
national complex claim leader at Marsh & McLennan Agency, says he expects
to see an increase in retirement litigation given the extensive market
volatility in the past year. “Whenever there is substantial sustained market
volatility, or a sustained bear market of 10% plus, claim frequency goes up
substantially for 12-plus months,” he explains.
Investors who bought high and sold in a trough only to see
their investments rebound later will second-guess the advice they received,
Niedernhofer notes. Furthermore, the mix of volatility, its duration and
economic pessimism will drive claims. “Add in more volatility and more duration
of volatility and claim propensity increases,” Niedernhofer says. “To that, add
in desperation—such as dramatically increased unemployment figures and a pandemic-fueled
widespread negative outlook—and litigation activity will increase in every
area, and certainly in investment advice.”
Kasten says he expects most investment litigation that will
occur within the coming years will primarily be due to investment results after
prolonged, multi-quarter or multi-year down markets. He says litigation
increased in the years after the dot-com collapse of 2000 and the Great
Recession of 2008 because participants were exposed to severe risk without
diversification. “If you get into a prolonged decline, where it’s quarter after
quarter of losing results, and you see a lot of participants losing a lot more
money than you thought, you will see litigation from that,” he warns.
Click
here for the original article.