<nobr>Apr 15, 2009</nobr>

ERIC Urges Appeals Court to Uphold District Court Dismissal of 401(k) Excessive Fee Case

Washington, D.C. -- The ERISA Industry Committee (ERIC), a Washington, D.C.-based trade association representing America's major employers, today filed with the U.S. Court of Appeals for the Eighth Circuit an amicus brief urging the court to uphold the dismissal of a suit claiming that a plan sponsor and its fiduciaries violated their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by subjecting 401(k) plan participants to excessive fees and expenses, engaging in prohibited transactions, and not prudently evaluating investment options for participants (Braden v. Wal-Mart Stores, Inc.). The U.S. Chamber of Commerce and the American Benefits Council joined ERIC on the brief.

ERIC Counsel John Vine and T.L. Cubbage of Covington & Burling, LLP, drafted the brief. They also drafted ERIC's brief in a similar case, Hecker v. Deere, which was cited by the appellate court that considered Hecker.

The brief rebuts plaintiffs' allegations by addressing in detail the duty to make investments prudently, the duty to pay no more than reasonable fees for services, the duty of disclosure, and prohibited transactions. The brief also argues that the pleading and liability standards advocated by the plaintiff endangers 401(k) plans, and that litigation outcomes that reduce the desirability of defined contribution plans pose a more general threat to the employer-sponsored retirement plan system.

"The risk (or perception) that ERISA allows participants merely to second-guess diligently made decisions by fiduciaries concerning services or investment options for 401(k) plans is as likely to deter benefit plans as it is to deter excessive fees. Rather than mitigating risk by exercising more caution in selecting and negotiating with plan vendors, employers may be motivated to avoid risk altogether by dropping their employee benefit plans," the brief argues.

This case is one of many recent lawsuits making essentially similar allegations, including at least 18 similar lawsuits filed against major employers between September 2006 and November 2007 (before this action began in March 2008). These cases arose as law firms have publicly advertised for and solicited 401(k) plan participants to become plaintiffs in such plan expense lawsuits, and in this case, for example, the plaintiff's counsel announced an "investigation" of the Wal-Mart Plan in November 2007 (four months before filing this action) and invited plan participants to contact their firm.

"If full-blown litigation proceedings can be triggered merely by an allegation that fiduciaries have failed to engage vendors at the lowest possible prices, or failed to make cost the primary criterion in selecting investment managers, the resulting perverse incentives are obvious. At best, if vendors are required to be chosen solely on the basis of cost, plans will be exposed to the grave risk of receiving sub-standard services," the brief argues.

ERIC President Mark Ugoretz said that "if the courts declare open season for baseless claims against 401(k) plan fiduciaries, the interests of plan participants seeking to save for retirement will be in jeopardy," and as the brief points out, the courts should not "entertain a barrage of armchair quarterbacks descending on the federal courts to second guess fiduciary decisions." If they do, "dockets will be clogged with vexatious litigation and capable persons will be discouraged from serving as ERISA fiduciaries. Congress clearly did not intend ERISA to have these consequences."

A link to the brief appears below.

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For more information:
Ted Godbout
Manager, Communications
The ERISA Industry Committee
1400 L Street, NW, Suite 350
Washington, DC 20005
Phone: (202) 789-1400
Fax: (202) 789-1120
tgodbout@eric.org
www.eric.org

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The ERISA Industry Committee (ERIC) is a non-profit association committed to representing the advancement of the employee retirement, health, and compensation plans of America's largest employers. ERIC's members provide benchmark retirement, health care coverage, compensation, and other economic security benefits directly to tens of millions of active and retired workers and their families. ERIC has a strong interest in proposals affecting its members' ability to deliver those benefits, their cost and their effectiveness, as well as the role of those benefits in the American economy.


Text Files:

Amicus Brief in Braden v. Wal-Mart

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