As MEPs grow, ERISA lawsuits rise with them

May 17, 2021

As companies seek efficiency, lower cost and reduced fiduciary headaches by joining a multiple-employer plan, the MEP providers are encountering the same ERISA challenges to their 401(k) or 403(b) plans as those faced by single-employer sponsors.

Allegations range from excessive investment fees to poorly performing investments to inadequate monitoring of administrative costs.

Attorneys representing the retirement industry and consultants who advise it predict that as MEPs become more popular and gather more assets, their providers face greater litigation risk. Pooled employer plans, authorized by the SECURE Act, only entered the market as of Jan. 1, 2021, and haven't been subject to ERISA lawsuits.

"The provider is more vulnerable," said Kent Mason, a Washington-based partner at Davis & Harman LLP, noting that small companies joining an MEP lack sufficient assets to attract the plaintiffs' bar. "The small hardware store is not much of a defendant."

Mr. Mason represents retirement industry clients in ERISA lawsuits. Like others interviewed for this article, he declined to comment on specific cases.

"Some members of the plaintiffs' bar are comparing multiple-employer plans to a com- parable-sized single-employer plan," said Mr. Mason. "It's just wrong."

Plaintiffs' attorneys are "misunderstanding" the nature of MEPs when they try to make cost comparisons to single-employer plans, he said.

For example, MEP providers must deal with many different payroll systems among their sponsor clients, he said. The cost of communication to many sponsors is more complex and the cost of marketing to many clients is different than challenges faced by even the largest single-employer plans, he added.

Plaintiffs' lawyer Jerome Schlichter disagrees that MEPs present significant differences in 401(k) plan management vs. single-employer plans.

"From our perspective, these are not difficult, complicated plans to record keep," said Mr. Schlichter, founding and managing partner of Schlicter Bogard & Denton LLP, St. Louis, who represents clients suing MEPs for alleged ERISA violations. "We don't see a big difference in multiple employer plans compared to single-employer plans."

Among his clients were participants in a $4.9 billion asset MEP 401(k) plan run by Insperity Holdings Inc. The participants sued Insperity, some Insperity subsidiaries and Reliance Trust Co., the plan's trustee, in 2015.

In October 2020, the defendants, while admitting no wrongdoing, settled the case. Reliance paid the full $39.8 million settlement. Plaintiffs had accused Reliance of making "imprudent" investment decisions, including selecting and retaining "its own high cost and poorly performing" investments, the original complaint said.

Another MEP settlement — Mr. Schlichter's firm wasn't involved — was a $10 million payment, announced in July 2020, by the National Rural Electric Cooperative Association. The association was sued in July 2019 by participants in a $12.07 billion asset MEP 401(k) plan, alleging excessive fees in violation of ERISA. The association admitted no wrongdoing in the case of Intravaia et al. vs. The National Rural Electric Cooperative Association, et al.

An earlier MEP settlement of $6 million was announced August 2018 in the case of Clark et al. vs. Oasis Outsourcing Holdings Inc. et al. in which participants in an MEP 401(k) alleged an assortment of high fees. The defendants admitted no wrongdoing related to the $1.84 billion asset plan.