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It’s a Jungle Out There

If there is a Ground Zero in Employee Retirement Income Security Act (ERISA) litigation these days, it surely is the Dirksen Federal Building on Dearborn Street in downtown Chicago. The home of the 7th U.S. Circuit Court of Appeals is where the next battle in the infamous series of revenue-sharing lawsuits will be joined (see “Paying the Price,” PLANSPONSOR, December 2006): Dennis Hecker v. Deere & Company— currently one of the most closely followed pieces of ERISA litigation. A federal judge in Wisconsin tossed the case in June 2007 with prejudice and costs, noting, “[T]he complaint is a rambling 38-page collection long on legal argument, public policy rhetoric, and repetition, but vague in its allegations of facts which might be relevant to the claims alleged.” To no one’s astonishment, the Deere ruling has been appealed—and the 7th Circuit’s ruling could well help determine the future course of plan fee cases, because its eventual decision will directly affect litigation in the three-state area (Illinois, Indiana, and Wisconsin) the 7th Circuit serves. The ruling could, of course, also be relied on as precedent in litigation elsewhere around the country. Since late 2007, the Chicago appellate jurists have been considering assertions by lawyers for a group of Deere 401(k) participants that the farm equipment maker violated ERISA by not properly disclosing revenue-sharing arrangements

with trustee and recordkeeper Fidelity Management Trust Company and Fidelity Management and Research Company, and by imprudently agreeing to the use of funds that charged “excessive” and unreasonable fees. In a friend of the court brief, the ERISA Industry Committee, the American Benefits Council, and the National Association of Manufacturers have said that the Deere workers’ excessive fee claims are vague and contain an “utter lack of substance,” while also broadly labeling similar 401(k) fee cases against large corporations “fishing expeditions.” Still, the Deere appeal is significant because a 7th Circuit decision affirming the District Court’s decision would be a major blow to all of the class-action lawsuits involving big employers, asserts ERISA attorney Jason K. Bortz of the Washington firm of Davis & Harman LLP. “The 7th Circuit is an influential circuit, and this will be the first appellate court to consider the issues that are raised in the class-action lawsuits.” While suits over the excess/improperly disclosed fee issue have generated a good deal of retirement services industry buzz in recent months (the Deere case is but one of more than a dozen similar suits filed since September 2006 by the St. Louis-based law firm of Schlichter, Bogard & Denton), they are only part of a much broader web of potential ERISA legal hazards that plan sponsors must navigate.

ERISA litigation dangers lurk for plan sponsors 30 PLANSPONSOR JULY 2008

Illustration by Olaf Hajek


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