Changing conditions lay groundwork for ERISA’s evolution, more litigation

In its more than 50 years of existence, the Employment Retirement Income Security Act, or ERISA, has challenged even the most experienced employment attorneys.

But with a steady increase in ERISA litigation, the overturning of the Chevron doctrine by the U.S. Supreme Court in 2022, and President Donald Trump’s new administration taking shape, attorneys involved with ERISA are preparing for waves of litigation and potential changes.

In Virginia, attorneys say the commonwealth’s federal courts will be where many of the cases will be heard.

“Depending on the district that you’re in, federal courts tend to be more mechanical and faster,” Roanoke employment attorney William Gust of Gentry Locke said. “The Eastern District of Virginia, for instance, is referred to as a ‘rocket docket.’”

50 years of ERISA

ERISA was signed into law in 1974 by then-President Gerald Ford. It created the minimum standards for job-based retirement, health and other benefits.

“ERISA was originally designed to deal with pensions, and then it deals with retirement plans and welfare benefit plans, which include health insurance and any subcategories for health insurance, including health savings accounts,” Gust said.

The law was passed to avoid another pension collapse from occurring that could leave employees without retirement savings when a business closed. It passed in the wake of the collapse of the Studebaker Corp. in the 1960s, which left thousands of former employees of the automobile manufacturer without pensions.

In the years since, Gust said, pension plans “have gone the way of the dodo bird,” with employers now mostly providing 401(k) plans as a primary retirement account option.

“Who would have thought when ERISA came in that there was going to be something like a 401(k) plan?” Gust asked, noting how the act has evolved over the decades as retirement accounts have changed.

Aside from its 50th anniversary, 2024 was a historic year for ERISA, and the U.S. Supreme Court made a decision that will impact the future of litigation in this area.

The ruling in Loper Bright v. Raimondo overturned the principle of Chevron deference, which previously left ambiguities in law to an agency’s reasonable interpretation of it. Loper Bright instead made the issue of ambiguity in a law one to be resolved by the judicial branch.

“The primary question that arises from Loper Bright relates to whether ERISA regulations will pass muster under the new standard, particularly ERISA regulations that purport to deprive plans of rights set forth in the plain language of plan documents,” Richmond employment lawyer Andrew J. Henson of Troutman Pepper Locke said.

With the high court’s decision in Loper Bright, Henson brought up an example of a potential issue: “whether the regulations can deprive an administrator of discretionary authority that is reserved in the plan documents.”

“There is nothing in the text of ERISA that would appear to provide the [Department of Labor] with this regulatory power,” Henson said.

Thus far, he is aware of only one attempt in Virginia to use Loper Bright in ERISA litigation, which was unsuccessful. However, he anticipates the issue to come up again in the future.

Gust noted that in the last several years, the Department of Labor has been adjusting its rules and regulations on who is a fiduciary under its interpretation of ERISA, which the overturning of Chevron deference might alter.

“The Loper case concluded now that we are not required to give deference solely to the regulatory agency that implemented this interpretive regulation,” Gust said. “The courts are free themselves to interpret what was intended.”

Future of ERISA

The U.S. Supreme Court also has decided to hear arguments in Cunningham v. Cornell University, a case that will resolve a circuit split regarding plaintiffs’ pleas in prohibited transaction cases.

Gust said that in Cunningham, the 2nd Circuit held that the plaintiff was not precise enough in their pleading, dismissing the “vast majority” of the case.

“That’s what’s been appealed to the Supreme Court, to now discuss what is their burden of proving in a pleading before they can sustain a case for breach of fiduciary duty,” Gust said.

Depending on what happens with the Cunningham case, Gust said the decision could slow down breach of fiduciary duty lawsuits, which he said has been a “very popular” lawsuit over the last decade, namely in cases involving employee stock ownership plans, or ESOPs.

If the Supreme Court affirms the 2nd Circuit’s decision, Gust said Cunningham could “slow down” the amount of these cases.

Saying that ERISA litigation has “maintained a steady pace” in the commonwealth, Henson credited more attorneys in the ERISA space with the increase in litigation.

“There have been additional lawyers entering the space and representing claimants, which necessarily results in increased litigation,” Henson said. “We expect this trend to continue.”

New administration’s impact

Another potential future challenge involves the new Trump administration. In the early days of his second term, there are open questions on what effect Trump and his Cabinet will have on ERISA.

Trump has nominated former U.S. Rep. Lori Chavez-DeRemer, R-Ore., to be secretary of labor.

“She has a reputation as being sensitive to labor issues,” Gust said. “She does tend to have some outspoken positions about matters that could influence policy, but it’s early to tell.”

Gust noted that rulemaking at the federal level also comes from more established members of an agency, rather than presidential appointees.

Henson anticipated more of the same despite the change at the White House.

“The Trump administration has not called out ERISA as a specific priority,” he said. “I do not anticipate any material change in ERISA litigation due to the incoming administration.”

In Virginia, Henson said that the 4th Circuit has been adapting to new federal court adjudication rules.

He cited the circuit’s 2022 holding in Tekman v. Reliance Standard Life Insurance Co., which altered the common practice that settled ERISA benefit disputes via cross-motions for summary judgment.

“In Tekman, the 4th Circuit rejected this practice for cases reviewed de novo,” Henson said. “Instead, the court mandated that such cases be decided through a bench trial of the administrative record under F.R.C.P. Rule 52.”

In the waning days of President Joe Biden’s administration, the Department of Labor issued a proposed regulation defining “adequate consideration” and a proposed class exemption from certain prohibited transaction restrictions connected to ESOPs.

Gust said those regulations have been long-awaited.

“Congress has told them to come up with regulations, and they have been delinquent in doing that,” Gust said.

Lawyers Weekly staff writer Kallie Cox contributed to this report.