According to a new report, the number of excess fee and performance lawsuits filed in 2023 declined relative to the extraordinary filings levels in 2022, but excess fee lawsuit filings remained elevated. By contrast to prior years in which plaintiffs’ lawyers seemingly targeted benefit plans of all sizes, in 2023 the excess benefit plan lawsuits filed in 2023 primarily targeted companies with larger benefit plans. The number and aggregate total value of excess fee lawsuit settlements in 2023 was a record levels during the year. The January 8, 2024, report about the excess fee lawsuit filings, written by Daniel Aronowitz of Euclid Specialty, can be found here.

In excess fee lawsuits, participants in companies benefit plans allege that plan fiduciaries failed to pay only reasonable management fees, maintain appropriate documentation, and take steps to produce the best investment performance. Specifically, the plaintiffs (represented by one of a small handful of specialist plaintiffs’ firms concentrating on these kinds of cases) allege that the plans’ administrative and investment fees are too high and that the plan performance allegedly has fallen below supposed benchmarks. These kinds of cases have in the past resulted in many cases in large settlements as well as the payment of plaintiffs’ attorneys’ fees. A good overview of the excess fee litigation generally can be found here.

According to the Euclid Specialty report, there were 48 new excess fee lawsuits filed in 2023, down from the 89 filed in 2022, and the lowest annual number of excess fee lawsuits since 2019 (when there were 35 excess fee lawsuits filed). The 48 excess fee lawsuits filed in 2023 is well below the 101 filings in 2020.

While the reduced number of lawsuits in 2023 relative to 2024 may be viewed as positive news, the reasons for the decline may be less than reassuring. The report suggests that the reason the plaintiffs’ lawyers filed fewer of these kinds of lawsuits in 2023 was that they were simply too busy from the backlog of cases they filed in recent years. During the eight-year period from 2016 through 2023, plaintiffs’ lawyers filed a total of 463 excess fee lawsuits, and over 200 of them remain pending.

In addition, one of the plaintiffs’ law firms most heavily involved in filing these kinds of lawsuits (and in trolling on LinkedIn and social media for plan  participants to be involving in the cases) was “fully engaged in three excess fee trials in the last eight months.” 2023 was also a year of “significant activity,” with a record number of settlements (42), a record number of motions to dismiss, motions for summary judgment, appellate rulings, and trials.

The report suggests that the apparent “lull” in filings in 2023, following the active year of filings in 2022, follows a pattern set in 2020-21, when the record setting number of filings in 2020 (101) was followed a forty percent drop in the number of filings in 2021 (60) as the most active firms filed fewer cases during the year.

In recent years, several commentators have suggested that the plaintiffs’ lawyers specializing in these kinds of cases have targeted benefit plans of all sizes. However, in 2023, the excess fee lawsuits were filed primarily against companies with larger benefit plans. According to the report, of the 48 excess fee lawsuits filed in 2023, fully 32 (66%) were filed against companies with benefit plans of $1 billion or greater, and another 12 were filed against companies with benefit plan between $500 million and $1 billion. Only two were filed against companies with benefit plans under $250 million. The report notes that “the overwhelming trend was to sue jumbo plans with a higher potential for damages or to leverage a settlement.”

The report also notes that there were a record number of excess fee lawsuit settlements in 2023. According to the report, there were 42 excess fee lawsuit settlements in 2023, with an aggregate settlements value of a record $353 million, an average settlement of $8.4 million, and a settlement range from $200,000 to $124.6 million. The average was significantly lifted by a few very large settlements. If the outlier $124.6 million settlement, the average settlement was still $5.6 million.

The report notes that since 2020, there have been 111 settlements, with an increasing number of settlements each year, representing total settlement amounts of $911 million.

The report also notes that while the headline story about the 2023 filings may be that the number of excess fee lawsuit filings was down during the year relative to 2022, the likelihood is that “any short-term slowdown in the frequency of filings will be temporary.” Plaintiffs’ law firms continue to make information demands under ERISA to many companies, and numerous plaintiffs’ firms with no prior record of involvement in this space have recently shown up threatening litigation. The report suggests that “we are nowhere near an end to strike lawsuits alleging excess recordkeeping fees and investment fees.”

The report is quite detailed and quite interesting and warrants a careful reading at length and in full.