Every time I see an alert about a new ERISA lawsuit, I have a Pavlovian response. I immediately pull up the complaint, check which plaintiffs’ firm filed the suit, and dig in to read. This routine has become far too frequent the past six months.

For a decade, plan sponsors and service providers have been in the crosshairs of plaintiffs’ lawyers. Although a few cases have been litigated to conclusion in the courts with largely favorable results for plan sponsors and service providers, as a practical matter, the vast majority of cases wind up settling. What results from these settlements are attention-grabbing settlements that fill the headlines, denials of liability and settlement terms that often add to the regulatory burden of maintaining a 401(k) plan as part of our voluntary retirement plan system.

So what has changed?

Looking at the tsunami of new cases, it seems that plan sponsors and service providers face a dizzying world of contradictions:

• Last week I read one lawsuit alleging “it was imprudent to be in stable value” and the next lawsuit alleging “it was imprudent not to be in stable value.”
• One day cheapest is best and the next day nothing is cheap enough.
• More and more lawsuits simply say investment X didn’t do well/underperformed for this period/didn’t beat a plaintiffs’ defined benchmark, and claim imprudence.
• Recordkeeping fees should always be cheapest regardless of the needs, complexity or actual features of the plan or plan sponsor.

In short, it feels like the plaintiffs have moved to a world where every action is judged with the benefit (or burden) of 20/20 hindsight. ERISA has never required that plans go with the cheapest provider or investment or demonstrate that every investment decision bore fruit. Instead, ERISA simply requires that fiduciaries utilize a prudent process. The current world of litigation just seems to have gone off the rails in neglecting this fundamental premise of fiduciary prudence.

So where do plan sponsors, service providers and advisors go from here?

Settlements will continue. There are often valid reasons to settle ERISA lawsuits even if a defendant is confident they will win on the merits. It is not just a legal call — business considerations often play a significant role. Unfortunately, until more cases go the distance and there are strong wins by defendants, the current barrage of litigation (effectively funded by settlements) will likely continue.

It is easy to say that someone else should fight the good fight, but as more plaintiffs firms join the ERISA litigation fray, lawsuits proliferate, and settlements fuel this circular process, it falls on all of us to say, “When is enough enough?” and draw a line in the sand. There will always be litigation because reasonable people can disagree. And firms like mine will always have a role in these suits.

However, sometimes things just go too far. I fear that we are rapidly approaching or perhaps have already gone past that point.

David N. Levine is a Principal at Groom Law Group, Chartered, in Washington, DC. He writes the “Inside the Law” column for NAPA Net the Magazine.