A "Changed Landscape" May Render Plan Administrators Liable For Breaches Of Fiduciary Duty In Administering 401(k) Accounts.This article was first published in the Spring 2008 issue of Anderson Kill's Self Funding Advisor The United States Supreme Court United States Supreme Court: see Supreme Court, United States. on February 20, 2008 unanimously held that individual participants in "defined contribution plans Defined contribution plan A pension plan whose sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants. Related: Defined benefit plan " - typically 401(k) plans - regulated by the Employee Retirement Income Security Act The Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.A. § 1001 et seq. (1974), is a federal law that sets minimum standards for most voluntarily established Pension and health plans in private industry to provide protection for individuals enrolled in these plans. of 1974 ("ERISA See Employee Retirement Income Security Act. ERISA See Employee Retirement Income Security Act (ERISA). ") can sue their plan administrator for breaches of fiduciary duty Noun 1. fiduciary duty - the legal duty of a fiduciary to act in the best interests of the beneficiary legal duty - acts which the law requires be done or forborne that reduce the value of their individual account. LaRue v. DeWolff, Boberg & Associates, Inc., 128 S. Ct. 1020 (2008). The 9-0 decision was immediately hailed as one of the most important rulings in years on ERISA. It's hard to understate un·der·state v. un·der·stat·ed, un·der·stat·ing, un·der·states v.tr. 1. To state with less completeness or truth than seems warranted by the facts. 2. the ruling's potential impact, considering that approximately 70 million people hold about $3 trillion in 401(K) investments. See Greenhouse, Washington Post, February 21, 2008. But the impact of that unanimity was clouded by two separate concurrences, one of which, by Chief Justice Roberts Justice Roberts can refer to two separate United States Supreme Court justices:
The suit was filed by a 401(k) plan participant, LaRue, against his former employer and the ERISA-regulated 401(k) retirement savings plan Noun 1. retirement savings plan - a plan for setting aside money to be spent after retirement pension account, pension plan, retirement account, retirement plan, retirement program, retirement savings account administered by the employer. LaRue alleged that he had directed his employer to make certain investment changes to his individual 401(k) account. It failed to do so, allegedly resulting in a loss of about $150,000. The lower courts both held that while the plan administrator did breach its fiduciary duty, LaRue's suit must be dismissed because ERISA permitted a breach of fiduciary duty suit only on behalf of the entire plan, not on behalf of an individual account holder. That conclusion was based upon Massachusetts Mutual Life Insurance Company MassMutual Financial Group is the fleet name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliates, with more than 13 million clients and over $455 billion in assets under management at year-end 2006. v. Russell, 473 U.S. 134 (1985) ("Russell"), a United States Supreme Court decision generally understood to hold that lawsuits for breach of fiduciary duty could not be brought by individual participants in "defined benefit plans Defined benefit plan A pension plan obliging the sponsor to make specified dollar payments to qualifying employees at retirement. The pension obligations are effectively the debt obligation of the plan sponsor. Related: Defined contribution plan " - typically pension plans - unless the alleged breach caused losses to the entire plan. But the United States Supreme Court in LaRue ruled that the "landscape has changed" since its ruling in Russell more than 20 years ago. Now that defined contribution plans "dominate the retirement plan scene," the Court ruled that LaRue's suit should be allowed to proceed. This ruling reflected the reality that participants in pension plans do not have individual accounts and depend on the health of the plan as a whole, whereas a defined contribution plan consists of individual accounts only. The Impact Of The LaRue Decision Remains To Be Seen Though the Court unanimously agreed that an individual plan participant could sue the plan administrator for breach of fiduciary duty in administering the plan, the decision raises additional questions concerning the likelihood of the success of such a suit. First, cases brought by individual plan participants Plan participants Employees or other beneficiaries who are eligible to receive benefits from a company's employee benefit plan. are necessarily dependent upon the specific facts of each individual case. For instance, the Court expressly declined to consider whether the alleged investment directions were made "in accordance with the requirements specified by the plan, whether [LaRue] was required to exhaust remedies set forth in the plan before seeking relief in federal court pursuant to ERISA s. 502(a)(2), or whether [LaRue] asserted his rights in a timely fashion." The Court simply allowed the suit to proceed, but did not weigh any of the proof essential to a successful claim. Second, Chief Justice Robert's concurring opinion Noun 1. concurring opinion - an opinion that agrees with the court's disposition of the case but is written to express a particular judge's reasoning judgement, legal opinion, opinion, judgment - the legal document stating the reasons for a judicial decision; significantly blurs the impact of LaRue. His concurrence CONCURRENCE, French law. The equality of rights, or privilege which several persons-have over the same thing; as, for example, the right which two judgment creditors, Whose judgments were rendered at the same time, have to be paid out of the proceeds of real estate bound by them. Dict. de Jur. h.t. , which was joined by Justice Kennedy, states that the trial court on remand should determine whether LaRue's suit is really a claim for benefits under s. 502(a)(1)(B), and if so, whether that will require dismissal of the breach of fiduciary duty claim. Although observing that the argument was not raised below and that LaRue had not sought relief under s. 502(a)(1)(B), Justice Roberts wrote, "I simply highlight the fact that the Court's determination that the present claim be brought under s. 502(a)(2) is reached without considering whether the possible availability of relief under s. 502(a)(1)(B) alters that conclusion." He concluded that "I see nothing in today's opinion precluding the lower courts on remand, if they determine that the argument is properly before them, from considering the contention that LaRue's claim may proceed only under s. 502(a)(1)(B). In any event, other courts in other cases remain free to consider . . . what effect the availability of relief under s. 502(a)(1)(B) may have on a plan participant's ability to proceed under s. 502(a)(2)." The concurrence is important because s. 502(a)(1)(B) requires exhaustion of administrative remedies, a point which the majority expressly declined to review, and a requirement which would make individual suits against plan sponsors and fiduciaries more difficult to prosecute. Conclusion Although the LaRue decision unquestionably un·ques·tion·a·ble adj. Beyond question or doubt. See Synonyms at authentic. un·ques  tion·a·bil allows an individual
plan participant to sue the plan's sponsors and fiduciaries, the
sky is not necessarily falling. The full impact of the decision remains
unclear and, for the immediate future, there are many steps that
employers may take to ensure that their exposure to a LaRue-inspired
suit is limited.
About The Author: James J. Fournier is an attorney at Anderson Kill's Washington, D.C. office in the firm's Insurance Recovery group. Mr. Fournier regularly represents policyholders in disputes with their insurance companies. Copyright [c] 2008 Anderson Kill & Olick, P.C., All rights reserved. The information appearing in this newsletter does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Mr James Fournier Anderson Kill & Olick, P.C. 1251 Avenue Of The Americas New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of New York 10020-1182 UNITED STATES Tel: 2122781000 Fax: 2122781733 E-mail: cueckerman@andersonkill.com URL URL in full Uniform Resource Locator Address of a resource on the Internet. The resource can be any type of file stored on a server, such as a Web page, a text file, a graphics file, or an application program. : www.andersonkill.com Click Here for related articles (c) Mondaq Ltd, 2008 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com |
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