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Increasing Prohibited Transaction Claims in ERISA Class Action Litigation

AIG and O’Melveny & Myers LLP analyze a troubling trend in prohibited transaction claims and the appeal of such claims to plaintiffs’ counsel.

Key highlights include:

  • Recent proliferation of ERISA litigation has challenged the investment options and expense structures of 401(k) and other defined contribution plans, including claims asserting violations of ERISA §406’s prohibited transaction provisions.

  • Such claims have appeal to plaintiffs’ counsel in part because they create liability for plan fiduciaries engaging in broad categories of transactions (including ones necessary to operate a benefit plan) unless a statutory or regulatory exemption applies.

  • Some court reactions have placed the burden on fiduciaries to prove compliance with highly technical and amorphous conditions of exemptions.

  • As a result, prohibited transaction claims have helped feed what has proven for defendants to be an expensive and nettlesome wave of litigation - leading fiduciaries in many cases to settle, with amounts paid commonly ranging well into the tens of millions of dollars.
     

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