The Department of Labor (DOL) has issued guidance covering situations in which a pension plan, by virtue of its holdings of its employer’s stock, is a potential claimant in a securities fraud suit: Prohibited Transaction Exemption (PTE) 2003-39: Class Exemption for the Release of Claims and Extensions of Credit in Connection with Litigation. 68 Fed. Reg. 75632-40 (Dec. 31, 2003). The exemption arose out of “concerns raised by the pension community regarding the impact of ERISA’s prohibited transaction provisions of the settlement of litigation by employee benefit plans with parties of interest.” (PTE 2003-3039, p. 75632.)

This article, by NERA Senior Vice President Dr. David Tabak, provides an overview of the PTE and discusses the differences between investor losses and allowable claims, specifically related to securities class actions. Dr. Tabak also addresses settlement discounts relative to investor losses and the use of statistical models in determining the appropriate settlement amount. The article concludes that while no one measure will prove whether a settlement is reasonable, a determination of the expected amount of a settlement via statistical means provides an objective measure that can help justify or cast doubt upon a settlement amount and aid decision-makers in their task of approving or objecting to a settlement.