Supreme Court Recognizes Additional ERISA Claims

by Ted Olsen

The U.S. Supreme Court recently ruled that a defined contribution plan participant may personally sue under ERISA to recover damages for losses allegedly suffered because of the plan administrator's failure to properly implement investment directions.  LaRue v. DeWolff, Boberg & Associates, Inc., Case No. 06-856, 552 U.S. --- (Feb. 20, 2008).  Prior to this decision, many courts had ruled that the only legally-recognized ERISA lawsuits for plan administrator misconduct were those filed by plan participants on behalf of the plan itself, or those filed to recover plan assets improperly taken by a plan fiduciary.^

In LaRue, a 401(k) plan permitted participants to direct the investment of their contributions.  Although Mr. LaRue, a plan participant, had directed the plan to make certain changes to the investments in his individual account, the administrator of the plan did not do so.  Mr. LaRue filed an ERISA suit, claiming that the administrator had breached its fiduciary duties and caused him account losses of $150,000.

Mr. LaRue's claim was rejected by the Fourth Court of Appeals, which ruled that ERISA did not support his claim, because he was suing on his own behalf, not on behalf of the 401(k) plan as a whole.   

The Supreme Court ruled that Sections 409 and 502(a)(2) of ERISA provide a civil claim for remedies to individual plan participants such as Mr. LaRue - the former imposes liability on a fiduciary for breach of fiduciary duty and the latter provides for "appropriate relief," under certain circumstances, when a breach of fiduciary duty has been committed. 

The Court dismissed statements from an earlier Supreme Court decision, Massachusetts Mut. Life Co. v. Russell, 473 U.S. 134 (1985), which suggested that Section 502(a)(2) recoveries are permitted only if the suit would benefit the "entire plan."  According to the Court, those statements only referred to the defined benefit plans involved in that case, and were not a limitation on remedies for breaches of fiduciary duty under more modern defined contribution plans, such as Mr. LaRue's 401(k) plan:

Russell's emphasis on protecting the "entire plan" from fiduciary misconduct reflects the former landscape of employee benefit plans.  That landscape has changed.

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Unlike the defined contribution plan in this case, the disability plan at issue in Russell did not have individual accounts; it paid a fixed benefit based on a percentage of the employee's salary.

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For defined contribution plans, . . . fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive.  Whether a fiduciary breach diminishes plan assets payable to all participants and beneficiaries, or only to persons tied to particular individual accounts, it creates the kind of harms that concerned the draftsmen of § 409.  Consequently, our references to the "entire plan" in Russell, which accurately reflect the operation of § 409 in the defined benefit context, are beside the point in the defined contribution context.

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© 2008 Sherman & Howard L.L.C.                                                          March 3, 2008