ERISA Litigation: Best Practice Tips from Speakers


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ERISA Litigation: Best Practice Tips from Speakers

  1. 1. #ERISALitigation Best Practice Tips from Speakers
  2. 2. #ERISALitigation Miriam (Dusty) M. Burke Partner Vinson & Elkins LLP Dusty Burke is a partner in the Employee Benefits and Executive Compensation group at Vinson & Elkins. She devotes a significant portion of her practice to ERISA litigation, defending clients in class actions involving stock drop claims, cash balance plan claims, breach of fiduciary duty claims, claims for pension plan benefits, cutback claims, and executive compensation litigation. Dusty also frequently counsels clients on best practices for avoiding or mitigating exposure to ERISA litigation. She is a frequent speaker at ERISA litigation conferences and employee benefits and executive compensation seminars and has authored several articles on various aspects of ERISA litigation. Dusty has been professionally recognized in The Best Lawyers in America® in ERISA litigation, 2012, 2013, 2014; The Best Lawyers in America® in employee benefits and executive compensation, 2002 to 2014; The Legal 500 U.S. in employee benefits/executive compensation, 2011, 2012, 2013; and "Texas Super Lawyer," Texas Monthly, 2002 to 2010.
  3. 3. 3 #ERISALitigation “The best way for a fiduciary to win—or even completely avoid—an ERISA lawsuit is to make sure he has checked all the “best practices boxes” before the lawsuit is filed.” You are a fiduciary of an ERISA 401(k) plan reading a complaint recently filed against you alleging that you breached your fiduciary duties under ERISA. What do you and the plan sponsor of your plan wish had been done before the lawsuit was filed? Pre-Litigation Best Practices Check List: • Provide fiduciary training for the plan’s administrative committee. Few fiduciaries actually know before they get sued what duties ERISA requires of plan fiduciaries. Two hours of fiduciary training goes a long way. • Be aware of the “fiduciary exception” to the attorney client privilege. Communications relating to the administration of an ERISA plan are generally not protected from discovery in a lawsuit—even if made to or from inside/outside counsel. Keep protected communications (e.g., minutes relating to amendments to the plan) separate from unprotected communications (e.g., minutes relating to plan administration).
  4. 4. 4 #ERISALitigation • Protect the Board of Directors, the Company, and the officers from being named as deep-pocket defendants in a breach of fiduciary duty action by structuring the administration of the plan to (i) give the administrative and investment authority to a defined group of individuals (e.g., an administrative committee, an investment committee) and (ii) limit the individuals who are authorized to appoint members of those fiduciary committees. • Don’t use your corporate/securities documents as substitutes for ERISA plan documents. • Don’t take legal advice from your record keeper or third party administrator. • Draft plan documents to prevent plaintiffs from forum shopping by including (i) a stated limitations period for bringing benefit claims, (ii) a stated event that will trigger the accrual of that limitations period, and (iii) a governing jurisdiction. • Regularly update the plan fiduciaries of recent developments in the case law. An excellent way to determine how not to act is to know what conduct the courts have recently determined constitutes a breach of fiduciary duty. •
  5. 5. 5 #ERISALitigation James P. Mc Elligott Jr. Partner McGuire Woods LLP Mr. McElligott has a national ERISA litigation and arbitration practice, is a Fellow of the College of Labor and Employment Attorneys, and is listed in Best Lawyers in America (under ERISA, ERISA Litigation, Labor Law, and Employment Law), AV-Preeminent-Rated, Labor & Employment Law, Martindale-Hubbell, a “Leading Lawyer for Business,” Labor & Employment: Employee Benefits & Compensation in Chambers USA, 2008-2013, and "Virginia Super Lawyers," Employee Benefits/ERISA, Employment & Labor, 2007-2013. Mr. McElligott’s practice includes defense of class action claims of ERISA fiduciary breach; multi-employer plan withdrawals and mass withdrawals; ERISA “stock-drop” litigation; retiree medical claims; severance claims; “top hat” litigation; ERISA 510; PBGC lien and ERISA 4062(e) claims; and HIPAA privacy and security litigation. He has litigated in federal district and appellate courts, in Tax Court, in bankruptcy courts, and has handled matters before and in litigation with the PBGC, the NLRB, the EEOC, and the Department of Labor.
  6. 6. 6 #ERISALitigation Mr. McElligott is a member of the Employee Benefits Committee of the US Chamber of Commerce, the Employee Benefits Committees of the ABA Sections of Labor and Employment Law and Taxation, former president of the Federal Bar Association, Richmond Chapter, and former President of the Central Virginia Employee Benefits Council. He received his law degree from Harvard Law School, cum laude, served as Note Editor for the Harvard Journal on Legislation, and is a Phi Beta Kappa graduate of the University of Illinois. Best Practices for Dealing with Multiemployer Plans • Large, otherwise sophisticated companies often misunderstand liabilities of multiemployer plans. • Investors, including private equity funds, need to know controlled group rules to avoid liability. • Plans audit pension and welfare contributions and frequently claim additional contributions beyond what employers anticipated. • The right to resist additional contribution claims may be limited and subject to substantial penalties. • Avoid any participation by any controlled group member in a multiemployer plan if possible. This is difficult in certain industries and areas, such as construction/hotels in major metropolitan areas.
  7. 7. 7 #ERISALitigation • If any controlled group member participates in multiemployer plans, due diligence should be done on estimated withdrawal liability potential for mass withdrawal, and contribution obligation required by the collective bargaining agreement and plan documents. • Understand how to repudiate NLRA 8(f) construction pre-hire agreements. • Study the collective bargaining agreements, trust agreements, bylaws and rules, and on funding status and participation by other employers, available on the plans’ Form 5500s, DOL website, and other sources. • Monitor potential likelihood of mass withdrawal, understand mass withdrawal rules, and withdraw if possible before mass withdrawal becomes likely. • Unions are increasingly willing to agree to early withdrawal by employers. • Lump sum and periodic payment withdrawal liability figures are not actuarially equivalent. Employers generally must pay withdrawal liability while they contest it. • Know and strictly follow the special rules and deadlines for reviewing and arbitrating withdrawal liability. • Courts can determine whether an entity is an “employer” subject to withdrawal liability. • Know how the plan can accelerate employer’s lump sum liability.
  8. 8. 8 #ERISALitigation Mark Casciari Partner Seyfarth Shaw LLP Mark Casciari is a partner with Seyfarth Shaw LLP. He has represented employers, plan sponsors, plans, fiduciaries and plan administrators in ERISA class actions and in other employee benefits cases, in federal courts throughout the United States, in state courts and before arbitrators and mediators. Mark has served as amicus curiae counsel of record in two United States Supreme Court ERISA cases. He was counsel of record in these 2013 published ERISA decisions of the Court of Appeals for the Seventh Circuit: Hakim v. Accenture United States Pension Plan, 718 F.3d 675 (7th Cir. 2013) and Laskin v. Siegel, 728 F.3d 731 (7th Cir. 2013). Mark is a frequent author of articles on employee benefits litigation topics, and is a frequent contributor to Seyfarth's ERISA & Employee Benefits Blog, which can be found at Mark is a Fellow in the American College of Employee Benefits Counsel, a Fellow in the College of Labor and Employment Lawyers and a long-standing Adjunct Professor of Trial Advocacy at Northwestern University School of Law.
  9. 9. 9 #ERISALitigation My former partner, Congressman John Ehrlenborn, was one of the key architects of ERISA. He was quite fond of saying that private sector retirement security is like a three-legged stool. One leg is provided by employers, in the form of ERISA plans. Another is provided by individual savings. The third leg is provided by government benefits, such as Social Security and Medicare. The three-legged stool metaphor is an important backdrop to any discussion of ERISA litigation developments. It forces one to appreciate that ERISA does not stand alone in the quest for retirement security. And the legs of the stool are not built of the same material. Social Security and Medicare are mandates, while ERISA plans (outside the context of medical benefits, such as those mandated by the Affordable Care Act) and personal savings are not. The material of which ERISA is built is flexible. It encourages employers to offer plans in the first instance by dramatically limiting remedies and equally dramatically preempting state law. So, when lamenting the very limited remedies in the statute for private sector benefit plan plaintiffs, understand that without the ERISA paradigm, there would be fewer benefit plans in the first place, and the three-legged stool would wobble. We may get to the point of ditching the stool altogether, but we are not there yet. Until then, the role of the ERISA defense litigator is to keep the statute true to its structure, by focusing on the bigger picture and the unique composition of the ERISA leg of the stool. Best Practice Tip from Mr. Casciari
  10. 10. 10 #ERISALitigation Joseph M. Callow, Jr. is a Partner and Co-Chair of the Litigation Group at Keating Muething & Klekamp PLL. With 20+ years of experience solving commercial disputes, Joe helps clients manage and reduce the risk and costs associated with litigation for his clients. When business disputes arise, he handles and coordinates cases on a national, regional, and local basis. Joe primarily works on class action and complex commercial litigation including ERISA litigation. He also has experience in securities, antitrust, False Claims Act, and general corporate and business litigation. Joe helps manage the KMK Law E- Discovery/Litigation Support Group and is responsible for the development of proactive, defensible, and cost-effective, end-to-end E-Discovery solutions for clients, both before and after litigation arises. Joe blogs at and speaks frequently at legal and business seminars and conferences. Joseph M. Callow, Jr. Partner Keating Muething & Klekamp PLL
  11. 11. 11 #ERISALitigation The Search for the Goldilocks firm Searching for the right team to help in a litigation matter often means looking for the Goldilocks firm. As companies and in- house counsel are under increasing pressure to find quality representation at lower costs, there are lots of paper proposals and tough decisions to make. Big Law has high overhead that comes with multiple offices and mergers/expansion, which translates to higher billing rates (with multiple firms now having partners billing at over $1,000/hr) and more bodies on matters. Smaller law firms may offer better rates, but often lack the depth of experience or the resources to manage significant litigation or represent clients in multiple cities. I believe that the recent prosperity of mid-sized law firms reflects more companies and in-house counsel looking for Goldilocks firms and practice groups to represent them in most matters -- not too big, and not too small, but just right somewhere in the middle. Goldilocks firms: - Have invested in technology rather than bricks and mortar. - Use litigation/project budgets and alternative fee arrangements. - Develop a litigation plan, and adjust the plan as litigation proceeds. - Staff matters appropriately with people you meet and know. - Treat clients like business partners.
  12. 12. 12 #ERISALitigation Finding the Goldilocks firm is more difficult than walking into a house in the woods and tasting porridge, but you will sleep better after investing the time and resources to get the decision right. And in the legal climate today, it is definitely worth the time and effort to get it right.
  13. 13. 13 #ERISALitigation Doug Hinson is the leader of the firm's ERISA Litigation Group. He has led the defense of numerous Fortune 500, government, private and non-profit clients in all types of ERISA class actions, including 401(k) fee and employer stock matters, welfare benefit terminations, defined benefit calculation and anti-cutback actions, and severance matters. In addition, Mr. Hinson has substantial experience and expertise in securities, complex commercial and insurance class action litigation. Mr. Hinson's practice is national in scope. He has been recognized as a “national leader” in ERISA litigation by Chambers USA: America's Leading Lawyers for Business, Best Lawyers in America and The Legal 500 publications, and is listed in Who's Who in American Law and Super Lawyers magazine. Mr. Hinson is the chair of the Employee Benefits Committee of the Tort, Trial and Insurance Practice Section—and a member of the Joint Committee on Employee Benefits—of the American Bar Association. H. Douglas Hinson Partner Alston & Bird LLP
  14. 14. 14 #ERISALitigation Being on the front lines of ERISA Litigation provides important insight to what all of my clients want – how to avoid spending time with me (aka “how not to get sued”). Based on my experience, the key is having a plan governance/fiduciary/administrative process that is designed with potential litigation in mind, and then making sure the organizations and individuals who have roles in that process are well- advised and trained to do their part. ERISA Litigators bring knowledge and a perspective to both of these key tasks (design and training) that most compliance lawyers do not have. A modest investment of time and money today can help you avoid being a defendant tomorrow, in virtually all of the types of ERISA Litigation matters we are discussing at this conference. Three quick examples from the front lines of employer stock class actions, which is one of my panel’s topics, come to mind. First, consider who appoints your plan fiduciaries. If your board of directors is involved, they are potential defendants, and they don’t have to be. Second, if your SPD still acts as part of the prospectus for the employer stock in your plan, and it incorporates the public securities filings by reference, you need to make a change. Third, if the fiduciaries responsible for employer stock have not been trained on their role, and do not have legal advisors to guide them in tough times, they may not do all they can and should do – both to protect participants and themselves. Best Practice Tip from Mr. Douglass
  15. 15. 15 #ERISALitigation Susan Mangiero Managing Director Fiduciary Leadership‚ LLC Dr. Susan Mangiero is a CFA charterholder, certified Financial Risk Manager and Accredited Investment Fiduciary Analyst™. She offers independent risk management, fiduciary breach and valuation analysis, litigation support and training for institutional investors, asset managers, and banks and their attorneys and regulators. She has testified before the ERISA Advisory Council, the OECD and the International Organization of Pension Supervisors. She served as an expert witness on regulatory and private litigation matters and offered behind-the-scenes forensic analysis, calculation of damages and rebuttal report commentary. She has over twenty years of experience in capital markets, global treasury, financial statement analysis, performance reporting, fee assessment, executive compensation, company security risk assessment, asset-liability management, portfolio management, economic and investment analysis, derivatives, financial risk control and valuation. Her experience includes work on trading desks for several global banks, in the areas of fixed income, foreign exchange, interest rate and currency swaps, futures and options.
  16. 16. 16 #ERISALitigation Dr. Mangiero is the author of Risk Management for Pensions, Endowments and Foundations (John Wiley & Sons), a primer on risk and valuation issues for fiduciaries and their advisors. Her articles have appeared in Expert Alert (American Bar Association, Section of Litigation), Hedge Fund Review, Investment Lawyer, Valuation Strategies, RISK Magazine, Financial Services Review, Journal of Indexes, Family Foundation Advisor,, Expert Evidence Report, Bankers Magazine and the Journal of Compensation and Benefits. Dr. Mangiero has written chapters for several books, including the Litigation Services Handbook and The Handbook of Interest Rate Risk Management. She is the lead contributor to and
  17. 17. 17 #ERISALitigation Working Effectively with a Financial Expert Witness Commercial legal actions are often complex with potentially large dollar payoffs. Recent headlines suggest that the trend will continue. Some prospective litigants see investment risk woes as a business development bonanza, with billions of dollars at stake. Law firms and litigation support firms are creating special teams to address the areas of subprime write-downs, option backdating, risk controls, pricing and adequacy of disclosures. As a result, many litigators are ramping up their knowledge of arcane topics such as derivatives, valuation models, trading leverage and risk metrics. Close quarters, binding deadlines, massive amounts of documents, and the undue pressure of high visibility cases can consume even the most experienced practitioner. Add a financial expert to the mix and things can unravel quickly in the absence of ground rules and managed expectations. The role of a financial expert witness is to render analytical clarity, and that goal is best achieved when the expert and attorney work together effectively. Billable Time and Data Costs If men are from Mars and women are from Venus, attorneys are from Mercury and experts are from Neptune. Known for quick thinking and speed, “Mercurians” seek to keep clocked time to a necessary minimum.
  18. 18. 18 #ERISALitigation While an expert should always be mindful of not overcharging, differences of opinion about what must be done are common. At the beginning, an attorney typically provides a verbal case overview and a copy of the complaint. Once hired, an expert unearths relevant and often material facts as she is given new documents. This results in more billable time. Like Neptune, god of the sea, good experts create tempests if asked to do a second-rate job by scaling back on work they deem essential. Three things can occur, none of which are good. An expert may withdraw from an assignment if she believes that her adherence to best work practices are being compromised. An expert may complete work but feel resentful about not being paid for a job well done. Some may take shortcuts. To avoid problems, attorneys and experts should share project budget information at the outset. Scarce resources do not necessarily preclude the use of a qualified expert. To the contrary, a professional may be able to render a limited analysis as long as he identifies the report accordingly and makes the appropriate disclaimers with the opinion.1 For example, in lieu of providing a fullblown opinion of value, an analysis of risk factors that drive worth may suffice. Alternatively, it may not always be necessary to examine hedges for a large portfolio if it can be shown that risk controls failed on even a few occasions. Data is another budgetary consideration when hiring an expert to assist with business litigations. Most commercial disputes require accounting or financial numbers, sometimes going back many years.
  19. 19. 19 #ERISALitigation To avoid problems, attorneys and experts should share project budget information at the outset. Scarce resources do not necessarily preclude the use of a qualified expert. To the contrary, a professional may be able to render a limited analysis as long as he identifies the report accordingly and makes the appropriate disclaimers with the opinion.1 For example, in lieu of providing a fullblown opinion of value, an analysis of risk factors that drive worth may suffice. Alternatively, it may not always be necessary to examine hedges for a large portfolio if it can be shown that risk controls failed on even a few occasions. Data is another budgetary consideration when hiring an expert to assist with business litigations. Most commercial disputes require accounting or financial numbers, sometimes going back many years. The expert should inform the attorney about likely costs and availability. When historical price or fee information is rare or hard to obtain in a user-friendly format, the expert needs extra time to properly assemble a dataset. An expert’s request to be paid up front to acquire numbers is not unusual, with some datasets costing thousands of dollars. If confidentiality and easy access to technical support are important factors, direct subscription in the name of the expert is the way to go. Business data varies by vendor, packaging and quality. To illustrate, consider financial futures price data. A 90-day constant maturity contract is not the same instrument as the traded spot contract that gets closer to expiration with each passing day.
  20. 20. 20 #ERISALitigation Beta, a measure of a stock’s volatility vis-à-vis a general index like the S&P 500, can be reported on a levered or unlevered basis. Unless one is familiar with how a particular supplier does its calculations, trouble is sure to follow, especially with multiple step analyses.2 A good financial expert will be able to identify relevant information sources, know how to handle data "idiosyncrasies” and understand how bad inputs can distort computational outputs. In a similar fashion, a financial expert should be relatively familiar with canned software choices and know when and how a particular analytics program or model is likely to influence a result. Even when Daubert factors do not directly apply, a financial expert should be able to guide a thorough discussion about ease of use, ability to replicate numbers and acceptance by academic and industry peers. Clear Communication Some attorneys favor experts who carefully listen. Others want fearless analysts who ask the right questions. A majority enjoy individuals who can explain difficult concepts without the use of jargon or overly technical language. Clear communication goes a long way to making everyone’s life easier. Anything can be restated in common terms or illustrated in a manner that puts laymen at ease. Writing well and speaking persuasively are “must have” skills for any expert, but arguably more crucial for complex financial litigation.
  21. 21. 21 #ERISALitigation Imagine trying to explain funding status to a jury of part-time or unemployed workers who do not have a pension plan. Discuss regression or Monte Carlo simulation as a rocket scientist and wait for the inevitable request to speak plainly. Clever use of visuals is another preferred tool for clear communication. With complex financial cases, a timeline is an invaluable tool. Even when oft-used methods are relied upon (such as an event study to determine “but for” impact on stock price), a simple graph, tied to date of occurrence, speaks volumes. That said, graphs and statistical tabulations vary by quality and purpose. A savvy analyst should be familiar with how information can be effectively or deceptively presented. For example, volatility may appear dire when asset prices are reported for a particularly turbulent calendar interval that is far from representative of “average” performance. Meaningful conversation is a two-way responsibility. Attorney and expert must each understand what the other is saying acknowledging that attorneys are seldom comfortable with the intricacies of investing, valuation or risk mitigation techniques. The use of a few buzz words by the attorney might convey a false impression of financial literacy that tempts an expert to launch into an overly technical discussion of the issues in the case. The converse is true as well. Experts frequently benefit when an attorney takes the time to provide an overview of basic legal concepts.
  22. 22. 22 #ERISALitigation For example, concepts such as investment suitability or prudence vary by venue or type of organization. A primer on legal viability can assist an expert in identifying what economic characteristics or elements of the process to emphasize. Egos checked at the door make for a smooth communication channel in both directions. Feigning comprehension does no party any good. “Give me the 101 version” is an apt mantra if doing otherwise adds to billable hours, or corrupts the process by introducing more confusion and prevents resolution of the dispute. When citing academic studies or explaining statistical techniques, experts should refrain from automatically assuming that the work is known, understood or legitimate. If research is considered leading edge or dominates a field, the expert should say so and explain why. If some dispute the underlying assumptions, methodology or conclusions, elaborate rather than inviting a successful rebuttal. Conclusion The use of a financial expert or team of experts is more a necessity than a luxury in cases involving complex securities or transactions. Managing expectations and understanding budgetary and time constraints contribute to a smooth process. When litigations stretch into months or even years, attorneys must keep experts apprised as their schedules fill with other projects during interim lulls.
  23. 23. 23 #ERISALitigation Many financial experts enjoy the intellectual stimulation of working on multi-faceted cases. At a time of unprecedented and large-scale courtroom encounters, attorneys and financial experts must learn to work together effectively as they will likely be spending a lot of time together. 1 Some certification standards expressly prohibit limited analyses. 2 Bad beta numbers beget imprecise cost of capital numbers which in turn result in economic damages that are either too low or too high.
  24. 24. #ERISALitigation