One Law Firm Filed 11 Copycat Lawsuits Against Advisors of 401(k) Plans Last Year
Financial advisors have been plagued by 401(k) lawsuits in recent years. So frequent are new suits in the headlines, that it may seem like every law firm in the country has a case pending against an advisor. Yet in reality, many of the claims made against employee benefit fiduciaries are filed by comparatively few law firms that specialize in such litigation.
Here’s the story of a firm that filed 11 copycat lawsuits against advisors last year and what to know to protect yourself.
About Copycat Lawsuits
When most people think of a civil lawsuit, they think of a disagreement between two parties that involves very unique and particular details. The idea that both of these parties could simply be swapped out for two completely different parties without really changing the rest of the legal complaint strikes many as odd. But this is the basic idea behind a copycat lawsuit.
While there can always be claims of merit that resemble other claims, industry professionals say many of recent claims are lacking. They resemble fishing expeditions, where boilerplate legal claims are submitted in various jurisdictions against various businesses on behalf of various plaintiffs in hopes of netting a quick settlement. The idea is that if a particular claim is successful in one case, a similar claim may be successful in another.
Industry Experts Sound the Alarm
Recently, industry experts helped bring to light the story of one law firm that filed a total of 11 copycat lawsuits in 2022. The ERISA Industry Committee (ERIC), a group that advocates for large employers that sponsor workforce retirement plans, announced that it had filed its tenth amicus brief in support of a 401(k) plan sponsor. Like others, the sponsor had been sued by a plaintiff represented by Miller Shah LLP for offering a particular suite of target-date mutual funds (TDFs).
James Gelfand, President of ERIC, said the brief “serves to emphasize that the federal courts should be dismissing the purely hindsight-based allegations brought in nuisance cases like Alfretta Antoine, et al v. Marsh McLennan. If these suits proceed beyond motions to dismiss, they will exacerbate the surge of 401(k) litigation costs and risks, undermining retirement security for workers and retirees across the country.”
Tom Schrandt, Vice President, Partner and Practice Leader of the Advisor Insurance Program at Lockton Affinity, shared in the frustrations of advisor professionals: “Just when we thought the state of the fiduciary liability market couldn’t get worse, in comes the Miller Shah law firm with these excessive fee suits. Here, Miller Shah followed the common cookie-cutter excessive fee allegations formula, but also added fund underperformance into the mix. Now a fiduciary must offer the lowest priced and best performing fund options! Bottom line, every functioning fiduciary is exposed, and hiring a fiduciary consultant needs to be the normal cost of doing business.”
Plans Facing Lawsuits
The employee benefits plans facing the lawsuits from Miller Shah plaintiffs include:
Juliette Motz, et al. v. Citigroup, filed on July 29, 2022, in the US District Court for the District of Connecticut
Lynetta Luckett v. Wintrust Financial, filed on July 29, 2022, in the US District Court for the Northern District of Illinois
James Kistler, et al. v. Stanley Black & Decker, filed on July 29, 2022, in the US District Court for the District of Connecticut
Robert Bracalente, et al. v. Cisco Systems, Inc., filed on July 29, 2022, in the US District Court for the Northern District of California
Andre Hall, et al. v. Capital One Financial Corporation, filed on August 1, 2022, in the US District Court for the Eastern District of Virginia
Peter Trauernicht, et al. v. Genworth Financial, filed August 1, 2022, in the US District Court for the Eastern District of Virginia
Tullgren v. Booz Allen Hamilton Inc., filed on August 1, 2022, in the US District Court for the Eastern District of Virginia
Justin Beldock, et al v. Microsoft Corp., filed on August 2, 2022, in the US District Court for the Western District of Washington
Alfretta Antoine, et al. v. Marsh & McLennan, filed on August 4, 2022, in the US District Court for the Southern District of New York
Jermaine Anderson v. Advance Publications, filed on August 10, 2022, in the US District Court for the Southern District of New York
Christine Abel, et al. v. CMFG Life Insurance, filed on August 19, 2022, in the US District Court for the Western District of Wisconsin
As can be seen, many of the suits were filed on the same day, with several filed in the same jurisdiction. On its website, Miller Shah touts several previous successful claims against 401(k) plans and fiduciaries.
Basis of the Claim
The claim for all the suits rests on law established in 29 U.S.C. § 1109 regarding breach of fiduciary duties. Specific to the Marsh & McLennan case, NAPA reports the plan is alleged to have:
“[S]elected, retained and/or otherwise ratified poorly performing investments instead of offering more prudent alternative investments that were readily available at the time Defendants selected and retained the funds at issue and throughout the Class Period.”
The defendants are claimed to have cost plan participants millions in potential returns and:
“[F]ailed to act in the sole interest of Plan participants and breached their fiduciary duties by imprudently selecting, retaining and failing to appropriately monitor the clearly inferior BlackRock TDFs.”
The suit also makes the claim that the plan’s fiduciary defendants:
“[A]ppear to have chased the low fees charged by the BlackRock TDFs without any consideration of their ability to generate return.”
Regular readers may see the irony in claiming that these advisors were chasing low fees, considering that hundreds of previous 401(k) lawsuits accused advisors of charging excessive fees.
Another surprising fact about the suit is the claim of BlackRock TDFs’ inferiority. The funds have been rated as top investments on Morningstar for years. NAPA also notes there is a difference in strategy, glidepath and investments between the plan’s BlackRock TDFs and the TDFs of Vanguard, T. Rowe Price, American Funds and Fidelity selected as benchmarks. The BlackRock funds target a “to” retirement date, while the comparators target a “through” retirement date. This results in different pacing, but often superior results for the BlackRock funds.
Next Move for Advisors
In the new era of copycat ERISA lawsuits, advisors face risks around every corner. Industry experts recognize the dangers of letting suits like those brought by Miller Shah to proliferate. Not only can every move an investor makes be second-guessed, but thousands of advisors following the same industry best practices risk being targeted by these copycat claims.
It’s important to take steps to protect yourself and the right insurance can make all the difference. Lockton Affinity Advisor offers Errors & Omissions (E&O) Liability Insurance coverage that meets ERISA standards, including services as an ERISA 3(21) and 3(38) advisor, for your added protection and peace of mind.
With decades of experience specializing in insurance solutions for the financial services industry, we offer protection, benefits and service that covers you in ways competitors cannot. Visit online at LocktonAffinityAdvisor.com or call us at (844) 406-5958 to find out what our coverage will look like for you.