I recently stumbled across a report that claimed a “Massive Gap Between Participant and Attorney Recoveries in ERISA Lawsuits.”
That wasn’t exactly news to me, though it was a handy quantification[i] of a subset of ERISA settlements to make the case that the per-participant recoveries in ERISA litigation pale in comparison to the 25%–33% “pay day” that the plaintiffs’ bar gets in cases where there is a settlement.
The report — by Davis & Harman — focused on 27 settlements in 2025 involving (only) underperformance and excessive fee cases. In producing their conclusion, they employed some math that was arguably a bit “squishy”[ii] — and the results are all over the board — but you didn’t need to rely on that to see — and appreciate — the huge gap between what wound up in the lawyers’ pockets versus participants.
The rationale is, of course, that class action suits can be expensive to mount and pursue. The attorneys take on these cases, investing their time, energy, and money for years (and in some cases, decades) with no offsetting compensation. And, of course, there was no tally for all the cases filed that wound up with no recovery to counterbalance that expense.
But — let’s face it — when there is a “payday” for plaintiffs’ attorneys, it nearly always dwarfs whatever recovery they win for individual participants, if only because the recovery (net of attorneys’ fees, their expenses, the compensation to named plaintiffs, and the expense of administering the recovery) gets spread among thousands, and sometimes tens of thousands, of participants[iii] (we’re nearly always talking about large plans, after all).
Moreover, there are plenty of signs that certain firms are simply “in it” for the quick settlement “funded” by insurance money (the exhaustion of which likely incentivizes many a settlement). Little wonder that some of these firms begin their career with a personal injury focus.
There’s an argument to be made (and, trust me, the plaintiffs’ bar makes it) that litigation — or perhaps more precisely fear of future/potential litigation — has led to any number of long-term positive outcomes for the system overall. We’re talking about lower fund expenses, special (less expensive) retirement share classes, widespread availability of collective investment trusts, a reduction in revenue-sharing practices, greater reliance on passive/index fund options, etc. And there’s merit in those outcomes, though I’d be hard-pressed to “credit” that as a goal or objective of the firms that brought litigation.
However, there is something to be said for the renewed “outside” perspective that litigation has brought to retirement plan design and administration; would the move toward less expensive fund options have occurred as rapidly as it did without all those excessive fee suits? Would we be questioning the efficacy of managed accounts? The unbridled use of participant data? Would we, even today, be reminding folks to look to their plan documents to make sure it aligns with their forfeiture reallocation procedures?
But then, there are also any number of (at least potentially) positive changes (retirement income, alternative investments, managed accounts, target-date funds as a default, and at one time even automatic enrollment) that have been held in abeyance for fear of being sued. And let’s face it — the pace of litigation has led to significantly higher insurance premiums for every retirement plan. That’s a price we all pay.[iv]
In fairness, the vast majority of retirement plans will never be confronted with a class action lawsuit — they are, quite simply, too small to attract the attention of even the greediest plaintiffs’ attorneys.
Frankly, I’ve always considered the fear of litigation to be a poor motivator of good behaviors, though there are lessons to be learned.
Litigation may grab headlines and enrich attorneys, but it’s not a retirement strategy. The real work — and the real value — comes from plan fiduciaries who understand their role, document their decisions, and act solely in participants’ best interests.
That’s where — and how — participant outcomes are actually improved.
Not because of litigation — but in spite of it.
- Nevin E. Adams, JD
[i] See Davis & Harman Survey Highlights Massive Gap Between Participant and Attorney Recoveries in ERISA Lawsuits – Davis & Harman LLP.
[ii] They compared the median of the average per-participant award to the average plaintiff’s attorney’s fees…focused only on excessive fee and underperformance suits settled in 2025.
[iii] The participant-plaintiffs named in the suits fare better, of course, with “awards” routinely coming in between $5,000 and $10,000 each, though their investment of time and reputation surely counts for something.
[iv] Settlement amounts, though not insignificant, can be just the tip of the iceberg when it comes to tallying up the cost of litigation. Rarely acknowledged is the cost in time and outside counsel required to defend against litigation, much less the enormous cost of discovery, depositions, etc., before you even get to trial.
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