Compliance November 14, 2018

ERISA Litigation Landscape Mapped by LexisNexis

With the launch of its latest analytics module, Lex Machina has uncovered a variety of trends across all the flavors of ERISA litigation.

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Lex Machina, a LexisNexis company, announced the latest expansion of its legal analytics platform, featuring the addition of Employee Retirement Income Security Act (ERISA) litigation cases.

The firm offered PLANSPONSOR a sneak peek at some of the first findings generated by the ERISA analytics platform. According to the firm, the module encompasses nearly 83,000 cases filed in federal district court since 2009.

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Carla Rydholm, director of product at Lex Machina, says cases initiated by plan participants or beneficiaries involve alleged disputes over the administration or funding of various types of ERISA-protected employee benefits plans, including life, health, retirement, pension, profit-sharing, health care savings accounts and more.

With the launch of its latest module, she says Lex Machina already uncovered a variety of trends across all the flavors of ERISA litigation. Notably, the vast majority of ERISA cases are either settled pre-trial or were dismissed via summary judgment or contested dismissals. According to the analytics platform, fewer than 2% of cases proceed to trial.

“ERISA cases resolve with a default judgment about 11% of the time,” the firm says. “This is a large percentage of default judgments compared to other practice areas. A sizeable amount of these defaults are probably delinquent contribution claims, because employers who are unable to pay their contributions likely are unable to pay to defend a lawsuit.”

As the firm explains, a delinquent contribution case “usually involves a union or employee suing an employer for failure to pay contractually obligated contributions into a pension.” In looking at cases based on a delinquent contribution claim, defendants are receiving favorable judgment on the pleadings nearly six-times more often than claimants. However, if the case gets to summary judgment, claimants win about 58% the time. The firm finds more than $4 billion in damages have been awarded in ERISA cases since 2009.

“On the other hand, cases involving a claim denial are rarely resolved with a default judgment and have a significant number of summary judgment case resolutions,” the firm finds. “This may affect the length of a case, as the median time to summary judgment in a claim denial case is 471 days.”

According to the new analytics platform, the U.S. Department of Labor (DOL) is very active in the filing of enforcement actions on behalf of employees; these cases result in a consent judgment 60% of the time.

In running this analysis, Lex Machina found the Northern District of Illinois is the top venue for ERISA cases with 10% of all ERISA cases.

“This can be attributed to external factors such as region’s heavy union presence and having the large metropolitan area of Chicago as part of the federal district,” Rydholm says.

ERISA industry context

The move to do more ERISA analysis at LexisNexis comes after years of increased concern about litigation from retirement plan fiduciaries and their service providers. ERISA litigation experts agree the glut of lawsuits has been a long time coming and is the result of several concurrent trends—and steam has clearly picked up in recent years thanks to a highly active plaintiffs’ bar.

Emily Costin, partner at Alston & Bird, says the roots of current litigation trends go back to at least 2005 and the start of a new regulatory focus on fee and conflict of interest disclosures.

“Then came the financial crisis of 2008, which ushered in a wave of stock drop litigation,” she explains. “At this stage, those early stock drop cases have largely been litigated or settled and have faded as we get further away from 2008. In addition, the Supreme Court’s influential decision in Fifth-Third Bank vs. Dudenhoeffer has made it a lot more difficult for plaintiffs in stock drop cases to prove standing.”

With stock drop cases fading somewhat to the background, the new hot topic for litigators has become self-dealing by providers and conflicts of interest in recordkeeping and investment management arrangements. All of the cases center on the deceptively simple question of whether a tax-qualified retirement plan is profiting the plan sponsor (directly or indirectly) to the expense of participants.

Attorneys and insurance experts like Costin say that federal court judges have tended to allow more of these self-dealing type cases to move forward compared with the earlier stock drop wave, and plaintiffs have also had some success getting beyond the summary pleading and dismissal stage in cases focused on reasonableness of fees for recordkeepers.

According to Rydholm, ERISA litigation will remain one of the most complex and intricate areas of the law, with the majority of cases decided pre-trial or on bench decisions. As with all the firm’s legal analytics practice areas, the ERISA module spotlights the track records of opposing counsel and parties, the experience and behaviors of judges, case outcomes by federal district, and other critical factors, such as case timing, findings, and damages, which play a critical role in determining case strategy.

For more information, visit www.lexmachina.com.

Data and Research November 14, 2018

Fidelity Publishes Global Retirement Guidelines

The new guidelines offer a practical framework to help global and regional employers better understand how much money different workers need to save for a stable retirement.  

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Just like in the United States, workers around the globe are being asked to assume greater responsibility for their retirement savings.

To recognize this trend, Fidelity has introduced a set of international retirement savings guidelines to help multinational companies and their employees. The first set of guidelines is tailored to help international employers identify the unique financial hurdles faced by workers in the U.K., Germany, Japan, Hong Kong and Canada.

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Jeanne Thompson, senior vice president and head of workplace solutions thought leadership for Fidelity, tells PLANSPONSOR the new guidelines should offer a practical framework to help global employers begin to understand how much money different workers need to save for a stable retirement. And even for U.S.-only employers, the guidelines will help demonstrate how assumed difference in longevity, access to private/public pension funds and various other factors impact a given working population’s retirement prospects.

“These guidelines can be part of an innovative international benefits program and can help employers monitor and encourage good retirement savings habits in a consistent manner across their regional workforces,” Thompson says. “The global retirement savings guidelines, which leverage a U.S. framework also known as ‘10X’ or age-based savings guidelines, are based on two metrics every worker knows—their age and salary.”

This provides workers and employers with a straightforward approach to understanding how much they should have in savings, as a multiple of their salary at specific age milestones. The projections become even more helpful when combined with locally relevant financial and demographic assumptions.

How much to save across geographies

As Thompson explains, Fidelity’s global retirement savings guidelines are based on several key assumptions and calculate a suggested annual savings rate and age-based savings milestones for each country. The guidelines also include a target income replacement rate and a “probable sustainable withdrawal rate,” which helps workers understand how much they will be able to withdraw from their savings each year without running out of money in retirement. 

In the United Kingdom, the guidelines for workers are to save a total 13% of their annual salary each year and aim to have saved seven-times their salary by retirement.

“This will put them on track to replace 35% of their pre-retirement income, which we estimate, when combined with their government pension, may enable them to maintain a pre-retirement lifestyle throughout retirement,” Thompson says, noting that Fidelity’s guidelines for U.K. workers are based on a 5% sustainable withdrawal rate in retirement.

Fidelity finds certain savings guidelines for workers in Germany are similar to those for U.S. workers. Notably, workers in Germany are encouraged to aim to have saved 10-times their final salary upon retirement, which will replace 45% of their pre-retirement income.

“The 4.6% withdrawal rate is consistent with the 4.5% withdrawal rate for U.S. workers,” Thompson says. “However, German workers are encouraged to save 21% of their salary each year.”

Facing an even more challenging savings picture, workers in Hong Kong are encouraged to save 12-times their final salary and have a suggested savings rate of 20%, which will put them on track to replace nearly half (48%) of their pre-retirement income. According to Fidelity, Hong Kong workers’ 4.1% sustainable withdrawal rate is the second lowest, only higher than Japan’s.

“The savings milestones are higher than the U.S. guidelines for several reasons, including the assumed retirement age in Hong Kong is earlier, the expected lifespan is longer and the assumed investment returns are on the lower end of the spectrum,” Thompson says.

Workers in Japan have a suggested savings rate of 16% of their annual salary, which is similar to the savings rate for U.S. workers, but Japanese workers are estimated to only need to aim to save seven-times their ending salary and replace 36% of their pre-retirement income. Workers in Japan have the lowest probable sustainable withdrawal rate (3.9%) due to the lowest expected long-term investment returns among the regions.

In Canada, the retirement savings rate for workers is only slightly higher than the rate for their counterparts in the U.S. The suggested savings rate for Canadian workers is 16% and with a target of saving 10-times their final salary, which will replace nearly half (45%) of their pre-retirement income. The suggested withdrawal rate of 4.5% is in line with the U.S.

Interpreting the findings for U.S. employers

The guidelines show broadly how having an employer based pension plan reduces the amount a person has to save, as well as the “X factor” at retirement, as they would be receiving income from their pension, so would therefore have to save less.

According to Fidelity, for every 1% of projected retirement income replacement from a pension, the required personal income replacement rate naturally declines by 1%, which has the effect of lowering savings rates and savings milestones. For example, in Germany where the state/government pension is estimated to replace approximately 41% of pre-retirement income and the suggested personal income replacement rate is 45%, Fidelity suggests a 21% savings rate and a savings milestone of 10-times.

However if the person had 10% of their retirement income coming from a pension plan, they could reduce the savings rate from 21% to 16% and X factor would drop from 10-times to seven-times. By the same token, if a person expects 20% of their retirement income to come from a pension plan, they could reduce the savings rate from 21% to 12% and X factor would drop from 10-times to 5-times.

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