Exclusive Interview: ERISA Attorney Stephen Rosenberg Says Litigation’s Legacy is Improved Plan Design
Stephen Rosenberg is a litigator with the Wagner Law Group in Boston, where he litigates ERISA and commercial disputes. He has litigated a wide range of ERISA class action, breach of fiduciary duty, denied benefit and equitable relief cases. He has also tried intellectual property, contract, director and officer, and complex insurance coverage cases in a number of jurisdictions. Stephen has published a number of articles on issues in ERISA litigation, and has spoken before a variety of trade groups, national organizations, bar associations and corporate groups. In his spare time, he authors The Boston ERISA and Insurance Litigation Blog, twice named a top Law Blog by Lexis/Nexis.
FN: Tell us a little bit about your background. What past experiences have led you to where you are today?
Rosenberg: I am a long time commercial litigator who had the good fortune of trying cases to juries from a relatively young age. While I was still building out my ERISA practice, I tried everything from product liability cases to reinsurance disputes to patent infringement actions to contract disputes. This has given me the ability to ground my ERISA expertise and advice in real world courtroom experience. While I was doing all of that, though, I was progressively expanding the range of my ERISA work for clients, which has by now included almost every type of ERISA case you can think of: breach of fiduciary duty cases, claims against plan vendors and administrators, LTD claims, multi-employer pension withdrawal disputes, class action prosecution and defense, ESOP valuation disputes, pension claims, anti-cutback cases, equitable relief claims, and a range of other types of cases. The combination of all of that has given me the great good fortune of being able to focus now on the type of work that I enjoy the most – ERISA cases – and to bring a great deal of expertise to those types of cases.
FN: You’ve been writing an ERISA blog for some time now. What have you found most intriguing about the blogosphere and how would what are some of the characteristics of your audience?
Rosenberg: Great question. The most intriguing aspect for me ties directly into the second part of your question, which concerned the characteristics of my audience. What has intrigued me most of all in the ten-plus years I have been blogging on ERISA is the sheer knowledge, inquisitiveness, and creativity of both my readers and of others in the blogosphere who write on ERISA related issues. My favorite metaphor for it has been that engaging my audience and other writers on the internet has been like hanging out in the Harvard faculty lounge, only it’s open to everyone with something thoughtful to contribute on the questions raised by ERISA.
FN: What do you think is the most profound change in the ERISA environment since you began working in it?
Rosenberg: Without a doubt it has been the slowly increasing acceptance by the courts of theories of liability and tactics pursued by participants, beneficiaries, and their lawyers. With each passing year, plaintiffs make further in-roads on all aspects of plan related litigation. For example, from where I sit, participants and beneficiaries have dramatically increased their ability to recover using equitable remedies, have made significant but subtle advances against the bar to recovery posed by discretionary review, and are obtaining significant settlements on cases that, ten years ago, they would have lost at summary judgment (or even right off the bat on a motion to dismiss).
Interestingly, this has driven another profound change to the benefit plan environment. I once had a constitutional law professor who liked to say that for every action there is a reaction. While she was talking about the push and pull of constitutional law doctrines and decisions, I think the same holds true for the impact that plaintiffs’ successes over the years are having on plan design and structure. There is more and more a focus in plan draftsmanship on including terms that could limit, either substantively or tactically, the ability of participants or beneficiaries to successfully bring suit, such as the increased use of contractual limitations periods and venue selection clauses, which are both issues that have garnered the attention, to varying degrees, of the Supreme Court. I think plaintiffs’ successes in ERISA litigation over the recent past have really driven plan sponsors and their lawyers to think proactively about what they can do, in writing their plans, to raise the level of difficulty for plaintiffs and their lawyers in ERISA litigation. Absent the increased and often high profile successes of the plaintiffs’ bar over the past several years, I doubt you would see this focus on that aspect of plan design.
FN: Describe the biggest fiduciary risks faced by plan sponsors and what do you suggest is the best way for them to reduce or even eliminate these risks.
Rosenberg: In some ways, what is the “biggest” fiduciary risk depends on the particular plan sponsor, the size and sophistication of its benefit plans and operations, and its industry. A wholly employee-owned/ESOP company is going to face particular fiduciary risks that are highly divergent from those of a Fortune 100 company with large holdings by employees of company stock within defined contribution plans. Likewise, a company with a pension plan still in place faces significantly different risks than one offering only a 401k plan, or one that is in the process of transitioning to a cash balance plan. You can carry that analysis out to infinity.
However, even after you control for those variables, what they will all have in common is that their biggest fiduciary risks are operational. Fiduciary exposure in recent high-profile cases have come from decisions that favored – or at least gave the impression of favoring – the company’s interests over those of the participants, or from plan communications that were misleading, or from fiduciary decisions that were not based on sufficient information and investigation. My experience is that these same trends hold up across the range of fiduciary duty cases that are decided in courts every day, far from the limelight. What they all have in common is that all of these reflect deviance, on an operational level, from the expectation that the fiduciaries will act knowledgably, in accordance with the plan documents, and for the best interests of the employee participants.
Recognizing this leads to the answer to your question of the best way for fiduciaries to reduce or eliminate these fiduciary risks, which are education and investment – educating themselves about the issues that confront them before making decisions that affect the plan’s operations, and investing in the staffing and outside expertise necessary to make informed decisions. Do that and the risk of fiduciary exposure will decrease dramatically.
FN: Make a case for the following: It is fair to require one group of service providers (non-broker investment advisers) to abide by the fiduciary standard while another group of service providers providing the same service (broker investment advisors) is not required to abide by the fiduciary standard? Ultimately, is the “battle of the fiduciary standard” more about doing what’s right for the client or about leveling the playing field between professionals offering identical services?
Rosenberg: It’s fair to distinguish between the two, without forcing them both to comply with one consistent standard, but only if you enforce an obligation of substantial, substantive, and plain English disclosure by advisors to customers, with an accompanying and realistic risk of liability if a service provider fails to do it. In that kind of a regime, clients know what they are getting from each possible service provider and are making an informed decision. If you have that predicate, then there is nothing unfair about one group of providers having to abide by a different standard than the other; if customers understand what they are getting from one type of vendor as opposed to the other, but select one that is not subject to the fiduciary standard, than the marketplace has told us what people want and are willing to pay for. There is nothing unfair about losing a fair and open competition in a marketplace of informed buyers.
FN: What poses the greatest fiduciary liability to professionals that they least expect?
Rosenberg: If by professionals we are talking about financial and other executives within a company that has significant benefit plans, then the answer is their potential status as deemed or functional fiduciaries. Plaintiffs’ lawyers are always looking to bring into a case, as potential defendants, as many senior executives of a company as possible, by alleging that they played some role with regard to a plan that was sufficient to render them fiduciaries. In some instances, plaintiffs’ lawyers are right, and executives who don’t believe they are plan fiduciaries get turned into fiduciaries, and end up facing fiduciary exposure. That is the very definition of a fiduciary liability that they didn’t expect.
If by professionals we are talking about outside advisors and vendors to plans, then the biggest unexpected risk they face is, likewise, the possibility of being declared fiduciaries at all. Many of those relationships are structured, contractually and otherwise, to try to avoid assuming that status. Further, regardless of the structure of the relationship, many such advisors assume they are not fiduciaries. I don’t think that the walls many advisors have put up against being found to be fiduciaries are always as complete as advisors believe they are, which can cause them to confront the wholly unexpected or at least unplanned for risk of being found liable as a fiduciary.
FN: If you could write regulations in Washington, D.C., what would be your highest priority and how would you address it?
Rosenberg: Without a doubt, participant communications. The entire field is a mess, even though we have a body of regulations governing the contents and design of such communications. Time and time again, at the heart of litigation, are communications that either are not understood by participants or that inaccurately present key information to participants. In fact, the recent decision by the Southern District of New York in Osberg is very much about non-disclosures in plan communications. Far away from the limelight, there is probably an issue of a communications failure or disjunct in some form or another in nine out of ten cases that I handle. Sometimes those failings are central to a claim against a plan sponsor, administrator or fiduciary; other times, they are just the emotional last straw that provokes suit. Either way, communications failures are central to problems in the participant/plan sponsor relationship and to much of ERISA litigation.
I would address it with regulations governing employee/participant communications that have a “real world” focus, and that flow from what can be realistically expected to be communicated and realistically expected to be understood by participants. Of particular concern is the fact that a fundamental problem in this realm is over lawyering, in the sense that communications are written very carefully for the purpose of complying with regulatory requirements while avoiding saying anything that could be used against the administrator or fiduciary in litigation. This isn’t exactly the dynamic you would want if your goal was to encourage effective communication. I would encourage over sharing, even at the risk of making a mistake, by creating a safe harbor for good faith efforts to communicate fairly with participants, and also what I like to call a “no harm, no foul” safe harbor, which would preclude liability if a participant was not actually, causally harmed by a misstatement.
FN: What question is most often asked of you by clients and prospects?
Rosenberg: Easy. What in the world does ERISA require me to do in this situation? Have I violated it? How do I fix it? These questions go to the heart of why I enjoy this area of the law so much. It is endlessly complicated, which makes it endlessly interesting.
FN: Do you have any other thoughts, comments, silly non sequitors you would like to share with our readers?
Rosenberg: You cannot overstate the importance of employee benefit plans in this day and age, both to your operations, your customers, your employees, and your bottom line. They are an integral part of compensation, which is central to a happy employee population and thus to happy customers. More than that, though, is the fact that we all know we are living through a time of tremendous and difficult change in the retirement landscape, as well as a time of true concern over the cost and availability of health insurance. These are the topics that are central to ERISA and ERISA litigation. Moreover, the fact that they are such lightning rod issues is why, as I found myself saying to a client recently who is a plan vendor, you should always talk softly and carry a big ERISA litigator in your back pocket.
FN: Steve, this is a lot of food for thought. I’m sure our readers more than appreciate your insights. Thanks for offering them and we’ll be sure to continue reading you on The Boston ERISA and Insurance Litigation Blog.