Stock Market Causes Lawsuits Versus Retirement Plan Managers

The stock market drop that came with the recent recession caused a significant number

of lawsuits versus many retirement plan managers, says information from the US District Court. ERISA-related lawsuits of around 9,300 were filed within the twelve months before the end of March 2010. Cases associated with the Employee Retirement Income Security Act in that period may have been lower than the 2004 record of almost 11,500, but are much more than those before the Great Recession.

These lawsuits generally covered healthcare-plan or retirement-plan concerns, specifically from workers in the private sector. However, the issue is mostly regarded as an offshoot of stock market events from two years ago. Washington University law professor Peter Wiedenbeck explains that dropping share prices of numerous corporations that are publicly traded generated more pension-plan lawsuits, as these plans typically invested employee contributions in employer stock.

These investments, also called ESOPs or Employee Stock Ownership Plans, as well as 401Ks, were seen as the root of the trend of lawsuits. Wiedenbeck also says that ERISA experts and analysts called the incident, the ERISA stock drop litigation, as the lawsuits occurred after company stocks were involved in much investment loss due to the market. From 2000 to the beginning of 2005, cases related to the ERISA dramatically increased by 25%, no doubt because of stock market conditions and a slew of lawsuits concerning corporate fraud.

A study from Pension Governance Inc. and the Michel-Shaked Group looked at upwards of 2,400 ERISA-related appeals and lawsuits filed in 2005 to 2008. The examination may have come after the ERISA-lawsuit trend, but was notable due to the considerable rise of cases, both in number and complexity.

There were many legal issues that emerged in the ERISA cases, with almost all of them claiming that there were breaches in the management of employee assets or money, specifically the fiduciary duties of plan administrators. 75% of all cases also saw allegations that these managers went against plan policy, while 65% of these lawsuits said there were problems that resulted in employees not receiving full plan benefits.

In Illinois, more than 50% of around 1,000 ERISA cases filed since the beginning of this year were concerned with pension funds, states information from the Northern Illinois District Court. The district spans a portion of the northern part of Illinois, which also covers Chicago and Rockford. In addition to lawsuits versus retirement plan managers due to the stock market drop, a good number of the lawsuits from the area were started by the managers of labor-centered pensions against construction companies due to non-compliance with employee contribution policies as set by Illinois labor contracts.

by: Katherine Smith

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