Trustees’ Fiduciary Duties Relating to Securities Class Action Litigation

As fiduciaries, trustees are held to a stringent legal standard of care in administering their Pension Plan. Central to their responsibilities is the duty of prudent administration, which requires careful consideration of the Plan’s purpose, terms, and relevant circumstances. Failure to exercise appropriate diligence, skill, and prudence may result in personal liability for the losses incurred by the Plan.

The law offers limited guidance on how trustees should fulfill their fiduciary duties in the context of securities class action litigation. In such cases, trustees or the Plan’s governing body must evaluate several potential courses of action—ranging from serving as lead plaintiff, participating passively through the settlement process, to opting out entirely. While some experts contend that filing proofs of claim exceeds the typical scope of fiduciary responsibility, others assert that institutional investors have a legal duty to do so unless it would be imprudent or futile. To navigate this ambiguity, Plans are encouraged to adopt a Securities Litigation Policy that provides clear direction for trustee decision-making. Engaging legal counsel with expertise in securities litigation is a prudent first step in developing and implementing such a policy.

Portfolio Monitoring Is the Best Way for Plans to Discharge Their Fiduciary Duty

Portfolio monitoring is the process of tracking a Plan’s securities investments against class action filings in U.S. and international courts. A robust monitoring program identifies shareholder lawsuits where the Plan may benefit by participating as a lead plaintiff or individual claimant, enhancing potential recoveries and protecting member interests. It also ensures timely identification of settlement opportunities for which the Plan is eligible.

Recognized as an industry best practice, portfolio monitoring is often provided at no cost to Pension Plans by law firms specializing in securities litigation. These firms assess each case based on its merits, likelihood of recovery, potential for corporate governance improvements, and alignment with the Plan’s investment and litigation policies, including any loss thresholds.

To support informed decision-making, each Plan should adopt their own Securities Litigation Policy, which should articulate the appropriate course of action when relevant litigation arises and be reviewed periodically to ensure it reflects the Plan’s evolving strategy and fiduciary approach to securities litigation.

Conclusion

Implementing a portfolio monitoring program is a best practice for fulfilling fiduciary duties in the context of securities litigation. It enables trustees to protect the interests of the Pension Plan and its members by staying informed and exercising sound

judgment in response to evolving legal standards. Regardless of a Plan’s size, having structured processes to deliver timely, relevant information is essential for effective decision-making. At Lowey Dannenberg, we are committed to partnering with investment staff and trustees to uphold the high standards of care that Pension Plans demand.

Lowey Dannenberg P.C. is a leading litigation law firm headquartered in White Plains, New York. With a proven track record of securing multi-million-dollar settlements and recovering billions for investors and consumers, Lowey brings over five decades of experience advocating for public pension funds, institutional investors, and individuals in complex litigation across federal and state courts.

About the Authors

Andrea Farah, Esq.

Andrea Farah, Esq. is a Senior Associate who focuses her practice on securities fraud, commodities manipulation, and antitrust litigation. Andrea is one of Lowey’s attorneys who leads the securities monitoring team, identifies securities litigation opportunities for clients, and is a frequent panel contributor at various Institutional Public Pension Plan events.

John Madden

John Madden is Lowey’s Managing Director of Institutional Client Services. With over 30 years of experience supporting public pension systems and their consultants, John offers deep expertise in fiduciary responsibilities and the distinct challenges faced by public institutions entrusted with safeguarding shareholder assets.

If you have any securities litigation-related questions, email Andrea Farah at afarah@lowey.com or John Madden at jmadden@lowey.com, or fill out the form, and we will contact you shortly.