Congress introduces ERISA Litigation Reform Act: Key provisions

Congressman Randy Fine (R-FL) recently introduced the ERISA Litigation Reform Act (HR 6084), proposing that the bill would ensure retirement plan sponsors and participants operate under a more predictable and effective legal framework for certain claims brought under the Employee Retirement Income Security Act of 1974, as amended (ERISA).

The legislation aims to curb meritless class actions by clarifying the pleading standard applicable to ERISA-prohibited transactions claims. The reform effort comes in response to recent litigation trends and the United States Supreme Court’s decision in Cunningham v. Cornell last year, which effectively lowered the pleading standard for prohibited transaction claims under ERISA.

Key provisions

The ERISA Litigation Reform Act seeks to amend Section 502 of ERISA by establishing a clear pleading standard for prohibited transaction claims. By way of background, Section 406 of ERISA sets out transactions that are prohibited under the statute, while Section 408 lists exemptions to those prohibitions.

The bill proposes that the “plaintiff has the burden of plausibly alleging and proving” not only a violation under Section 406, but also that no exemption under Section 408 applies. In other words, for claims alleging that a fiduciary caused a plan to engage in a prohibited transaction, plaintiffs must allege (and ultimately prove) “that the transaction is not exempt” under Section 408(b)(2) or Section 408(e) of ERISA.

In effect, the bill would nullify the holding of Cunningham v. Cornell, in which the Supreme Court held that a plaintiff is required to allege only the elements specified in Section 406(a) of ERISA – “no more, no less.”

The ERISA Litigation Reform Act also proposes an automatic stay of “all discovery and other proceedings” when a defendant files a motion to dismiss. The stay would remain in effect until the court resolves the motion (unless the court finds that specific, limited discovery is necessary to preserve evidence or prevent undue prejudice).

During the stay, parties are encouraged to preserve documents related to the claims, and courts can impose appropriate sanctions as necessary for any preservation failures. The purpose of the stay is to prevent costly, premature discovery before a court has ruled on the legal sufficiency of the claims set forth in the complaint.

The bill has been referred to the House Committee on Education and the Workforce and the House Judiciary Committee.

Takeaways

The ERISA Litigation Reform Act is intended to reduce meritless lawsuits and streamline the pleading standard for prohibited transaction claims. Plan sponsors are encouraged to watch this legislative development, as it could provide a path for courts to identify and dismiss certain claims more quickly and efficiently.

For additional information, please contact the authors or your DLA Piper relationship attorney.