An ERISA-based class action against a Pennsylvania law firm will not be dismissed at this time.
The defendant law firm, Schnader Harrison Segal & Lewis, which has since disbanded, had filed a motion to dismiss the class action filed against it by a former member of the firm. A federal judge in Philadelphia recently denied that motion, stating additional discovery must be conducted to resolve genuine disputes over material facts.
The suit was filed by a non-equity partner against the firm's retirement and savings plan and the former partners who acted as plan fiduciaries. The plaintiff alleges the plan was supposed to be funded with mandatory deferred compensation but instead, those designated funds were commingled with the firm's general assets in 2022 and 2023. Deferred compensation was withheld from the retirement and savings plan for months at a time, according to the allegations.
The judge's order stated the plaintiff had "plausibly alleged interrelated violations" of the Employee Retirement Income Security Act of 1974 (ERISA), which requires employers to segregate, from their general assets, any amounts withheld from paychecks for contributions to the retirement plan "as of the earliest date on which such contributions … can reasonably be segregated."
Moreover, the judge said that the "parties disagree on whether the contributions in question should be considered employee or employer contributions, which are governed by different requirements under ERISA." The litigation will continue. "Defunct law firm Schnader Harrison loses bid to dismiss ERISA suit over handling of retirement money" www.abajournal.com (Jul. 24, 2024).
Commentary
In any type of organization, for a fiduciary – plan administrator – to commingle monies intended for ERISA plans with other monies is a breach of fiduciary duty risk.
A fiduciary is generally defined as anyone who exercises discretionary authority or control over a plan's management or assets. These duties include the obligation to act solely in the interest of plan participants and their beneficiaries, with skill, prudence, and diligence, and follow plan documents unless those documents are inconsistent with ERISA rules.
Fiduciaries who breach any duty may be held responsible for restoring losses to the plan. Such a breach can also carry personal liability.
Although a fiduciary may be indemnified, that does not mean they will be exculpated – indemnification will not be enforced for "willful misconduct or gross negligence." A fiduciary may have to restore losses or return any profits made because of that breach of duty, and can be removed from their position as a fiduciary.